YOUR WEEKLY ROADMAP

After another week of downward pressure in the markets, the major indexes are sitting just above some key technical thresholds. This week could be that decisive line in the sand that tells us whether or not this pullback is a healthy and normal correction in a bull market or if there is something more to this.

As for that “line in the sand”, we can see that at the 4325 level in the S&P 500 (chart above). That old high was once prior resistance but now has acted as a support level once and it now may do so again. The index got within 10 points of touching that line on Friday and then experienced a nice intraday reversal to give traders a small glimmer of hope heading into this week.

This week there are three major things that have traders' attention and should drive markets. They are the Jackson Hole Economic Symposium, a continued rise in the 10-year and mortgage rates and dark clouds concerning the Chinese economy and its effect on markets.

Jackson Hole. Jerome Powell is scheduled to speak on Friday. Last year when he spoke the S&P 500 was in the midst of a strong summer rally and trading at 4325. He was adamant about the Fed’s rate hiking plans and essentially poured cold water on the rally.

This year the S&P 500 is trading at roughly the same price as it was last year. This time we are in the midst of a slight market correction and are trading down to the 4325 level. So it naturally seems like the proper pivot point for traders to watch as he gives his annual speech.

Will the Fed indicate hikes are almost over? Will they claim any sort of victory over taming inflation? Will he find that safe middle ground in his speech or rattle markets again? We will find out Friday and watch the 4325 level very closely.

Rates… Three charts to watch. Topping or Breaking Out?

Technically, we are reaching some critical levels that may see continuations or potential pivot points from where things could pause and reverse.

The 10-year yield index closed at its highest levels since 2007. Technically, as seen in this monthly chart, if it were to end August above 4.07% it would be a breakout and has many traders concerned that a run to 5% yields could be next.

If we were to see a run in yields, then expect high growth tech names to remain under pressure. Also causing investor angst is the rise of the 30-year mortgage rate which hit its highest level since 2002 at over 7%.

Lastly, the 30-year long-term treasury yield made a new 52-week high. Will we see a follow-through which would take mortgage rates even higher or will we experience a pullback as this level could act as a double top?

China. News out of China continues to keep investors on edge as their economy continues to slow. However it hasn’t had a profound impact on US stocks yet.

The Hang Seng Index remains one of the worst performing global indexes in 2023. It is down just over -10% this month alone and now down -9.25% year-to-date. The yuan traded at its lowest level vs the dollar since 2007. They cut rates two times over the last three months. The real estate market continues to be suspect as companies like Evergrande filed for US bankruptcy protection and many others are on the verge of collapse.

Chinese stocks that trade in the U.S. remain under pressure. This week shares of J.D.com (JD), Alibaba (BABA) and PDD Holdings (PDD) fell -9.4%, -8.1% and -5.2% respectively. KWEB, the Chinese Internet ETF has dropped -15.5% in August and Chinese EV stocks have also been getting battered as well. This week alone shares of NIO fell -17%, Xpeng (XPEV) lost -8.5% and LI Auto (LI) slipped -4%.

Economic news in China tends to be unpredictable and things can change on a dime. Traders are watching to see if any major news breaks over the weekend or early this week as they struggle to calm their markets.

Earnings. The end of summer slowdown is here. The headlines will be all about Nvidia (NVDA). Traders aren’t expecting much action over the next few weeks on the earnings front as the season is officially over.

Stocks in Focus…

Nvidia (NVDA) is the early favorite for Stock of the Year. It is up 196% year-to-date and has been the poster child for the Artificial Intelligence craze that has defined 2023.

The semiconductor titan has traded higher after 6 of its last 8 reports including monster gains of 24% and 14% over the last two quarters. Last week they received two notable price target increases from UBS and Morgan Stanley ahead of Wednesday’s release.

Last quarter the stock gapped from $305 to $385 after earnings and never looked back after the company upped their guidance as a result of their epic earnings beat. That $380 area - gap from last quarter - should act as support if tested to the downside. To the upside a run to 2023 highs would be likely.

Will be tough to see how they top last quarter, but it's always interesting to see what CEO Jensen Huang has up his sleeve. The stock has receded roughly -12% from its peak, it is now in the Trillion dollar market club and will have a large impact on both the Nasdaq and S&P 500.

Affirm (AFRM) has struggled delivering solid earnings reports. The buy-now, pay-later firm is up 50% year-to-date but down 60% over the last full year. It has traded lower the last four quarters after missing analysts' estimates each time.

The stock has been trying to find its footing over the last few months but each rally above $19 is met with strong selling pressure. The stock does have a lot to reverse as it is -91% below its November 2021 highs of $176.65. It is doubtful it can return to those heights any time soon, but hopefully an earnings beat and rally will change the recent trend.

Macy’s (M) has struggled over the course of 2023 as its down -27% year-to-date. Despite its struggles, the stock has traded higher after its last five quarterly reports. It comes into this week hoping to not only continue that streak, but reverse the overall downward trajectory of its price.

Last quarter shares sold off dramatically on its earnings report and traded to a 52-week low of $12.80 in early action. However, shares rallied sharply off the lows to actually close up on the day. In technical terms, we call that a key reversal day and the stock quickly recaptured its previous support level around $15.

Since then it has been range bound between $14.75 - $16.75 and hopes that this report can break it out above the range.

Economic Calendar

Tuesday - Existing Home Sales 10:00

Wednesday - New Home Sales 10:00

Thursday - Initial Jobless Claims 8:30

Friday - Jackson Hole Economic Symposium Opening Remarks by Jerome Powell

THE WEEK THAT WAS

The week saw an ominous streak continue. The mega caps declined for the third week in a row. It was the longest streak of the year and has seen the Nasdaq Composite fall -8.9% from its July peak.

Retail Earnings highlighted the week. It was a mixed bag of results with forecasts that remained rather tepid going forward.

Both Walmart (WMT) and Home Depot (HD) beat on EPS and revenues, while Target (TGT) (scroll to Stocks in the News) missed on revenues.

WMT’s guidance was somewhat rosier than its peers as its core staple business remains strong despite consumer discretionary items remaining relatively flat. HD said that the consumer is tackling smaller projects and reluctant to buy any big ticket items and was more cautious about its year end forecast.

Of the large retailers, the investor cut their exposure to HD and WMT as they dropped -2% and -1.1%. It appeared they were looking for value and rushed into TGT hoping the worst was behind them and that the back to school and holiday season will help them catch-up to their peers.

The big winners in retail were TJX Companies (TJX) and Ross Stores (ROST) with gains of 4.2% and 4.7% respectively. TJX was the only company to break out to new highs. While WMT and ROST did briefly tick at new highs they couldn’t close there.

Fed Minutes. Per usual, the Fed Minutes didn't really move the markets, but the discussion released from their last meeting when they raised rates by a ¼ point was a tad more hawkish than many believed.

The minutes stated “with inflation still well above the Committee’s longer-run goal and the labor market remaining tight, most participants continued to see significant upside risks to inflation, which could require further tightening of monetary policy”.

The probability of a rate hike for the next meeting in September remained low as all the attention will be on comments from the Jackson Hole Economic Symposium.

Heat Map. Another week and another sea of red. Healthcare stocks continue to outperform as Eli Lilly (LLY) built on last week's gains and closed at another all-time weekly high. Despite its great run it couldn’t lift the rest of the sector with it.

The only other big winner was one of last week’s biggest losers in Nvidia (NVDA) as it bounced back from a tough week. Tesla and Meta led the loser board and helped sink the Nasdaq to its third consecutive losing week.

STOCKS IN THE NEWS

Target (TGT) beat analyst EPS estimates handily coming in at $1.80 v expectations of $1.39. That was enough to cause the stock to pop as much as $10 on the open.

Yet despite a big beat, the company cut its full-year outlook warning of headwinds such as student loan repayments and rising interest rates that could continue to have negative effects on their bottom line.

As for the growing concern of the “shrink” factor, CEO Brian Cornell did address the issue. He said on the call, “Shrink remains consistent with our expectations but well above the sustainable level where we expect to operate over time, and unfortunately, safety incidents associated with theft are moving in the wrong direction”.

Shares of TGT finished the week up 1%. They outperformed their peers and the stock kept above key technical support levels.

Hawaiian Electric (HE), which supplies 95% of the power to the state of Hawaii, has seen shares drop as much as 70% this week due to the Maui wildfires. On Monday the company lost ⅓ of its value and on Tuesday it dropped another 20% as S&P cut its rating to junk.

The concern now, despite no official cause of the fire being announced, is if HE can withstand the multitude of lawsuits blaming them for their potential role in the deadliest fire in the U.S. over the last century.

Sadly the price activity is quite similar to what happened to PG&E (PCG) in late 2018 after it was blamed for causing wildfires in Northern California. Shares dropped nearly 90% from $50 to $5 (in blue, chart below) over a three month stretch and has yet to recover half its losses.

Shares of HE finished the week lower by -56% closing at $13.77 its lowest levels since 2009.

Cava reported their first earnings as a publicly traded company and didn't disappoint. The company reported earnings of 0.21 a share vs an expected loss of -0.03. They also beat on revenues and opened 16 new restaurants during the quarter.

Shares which opened up over 10% to a high of $51.16 reversed course once trading began. The stock then traded lower as their CEO appeared on CNBC and addressed future headwinds going forward. For the week CAVA closed down -9% which is still up 95% from its IPO pricing but only $1.11 since its first trade.

MARKET STATS

The summer slowdown and August weakness narrative continued to ring true as all indexes lost over -2% last week. The hardest hit index was the small cap Russell 2000 which has now declined in three straight weeks after rallying for three straight weeks.

Stat of the Week - This week our stat comes to us from Chartr. Last week we saw the return of a high profile SPAC in Vietnamese EV startup, Vin Fast (VFS). Shares soared 68% in its first day of trading as its valuation leaped fellow auto companies Volkswagen, Ford, and GM.

By Friday’s close the stock had retreated -60% from its intraweek peak of $37.77 to close at $15.40. Sadly, as pointed out by Chartr in the above chart this rollercoaster ride is all too familiar in the world of SPAC’s. Time and again the initial hype overshadowed the longer term results.

Will Vin Fast prove to be different? The verdict is still out, but it’s off to an all too familiar start.

SECTOR WATCH

It was an ugly week across the board as all 11 major sector ETF’s finished lower. The sector hit the hardest was Consumer Discretionary (XLY) as its second largest component in Tesla experienced an 11% drop.

The “winners”, or in this week’s case the sectors that lost the least, included Energy (XLE) which outperformed the other indexes yet again. Despite faring better, the sector did snap an 8 week winning streak as it dropped -1.2%.

Disclaimer: This commentary is the product of Freedom Capital Markets for institutional use only. The views and opinions expressed herein are those of Jay Woods and are current as of this letter’s posting date. This commentary is general in nature and should not be construed as investment advice or research. Opinions are subject to change with market conditions. Neither Jay Woods nor Freedom Capital Markets is affiliated with the issuers mentioned herein. The views presented may not be suitable for all investors and are not intended to be relied on for legal or tax advice. Please note that any investment involves risk including loss of principal. Freedom Capital Markets (FCM) is the investment banking and equity capital markets arm of Prime Executions, Inc., a Member New York Stock Exchange, FINRA, & SIPC, and a wholly owned subsidiary of Freedom Holding Corp. (NASDAQ: FRHC).

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