The S&P 500 had its biggest comeback since October 2023—Are we witnessing the beginning of a bull run? 🐂

The S&P 500 experienced a significant rebound this week, jumping 3.93% to 5,554.25 points, marking its best weekly performance since October 2023 and snapping a four-week losing streak. The market’s upward trend was fueled by positive economic indicators that eased recession fears, with the Information Technology sector leading the charge, posting a 7.51% gain. Key data on inflation, retail sales, and optimistic comments from Walmart contributed to improved investor sentiment. Despite the positive outlook, the debate over the Federal Reserve’s monetary policy remains unresolved, with expectations shifting towards a smaller 25 basis point rate cut in September. Additionally, major companies like Home Depot, Cisco, Deere, and Applied Materials reported mixed results, while Warren Buffett’s Berkshire Hathaway and Bill Ackman’s Pershing Square made notable investment moves.

The Rebound After “Black Monday 2024”

The sharp decline on August 5, 2024, when the S&P 500 dropped 3%, has been a turning point for the market. Since then, a series of positive data indicators has helped to alleviate fears of an economic slowdown, encouraging investors to re-enter the market, particularly in growth sectors. The Information Technology sector led the charge this week, surging 7.51%, marking its best weekly performance since early November 2022.

Positive Economic Data Calms Recession Fears

The week began with momentum already building, thanks to the August 8 report on initial jobless claims, which showed the largest weekly decline since September 2023. This data played a crucial role in calming recession fears that had been exacerbated by the July jobs report earlier in the month.

As the week progressed, additional economic data further boosted market sentiment. Inflation and retail sales figures, along with optimistic remarks from retail giant Walmart (WMT), painted a picture of an economy on more stable footing. Wells Fargo analysts noted, “The economic calendar was packed this week. A quick look across the board suggests recession jitters may be overdone. Inflation continues its gradual descent, and business optimism has trended higher amid cooler input price growth and steady consumer spending.”

However, while the growth outlook appears solid, Wells Fargo cautioned that the debate over the extent of monetary policy easing this year is far from settled. The upcoming preliminary payroll benchmark revision and August’s jobs report will be crucial in shaping expectations for future Federal Reserve actions.

Federal Reserve Rate Cut Expectations Adjusted

In light of the favorable economic data, market participants have adjusted their expectations regarding the Federal Reserve’s next move. The odds of a 50 basis point rate cut at the September meeting have decreased, with a 25 basis point cut now seen as the more likely scenario. According to the CME Fed, the probability of the smaller rate cut stands at 72.5%.

Key Corporate Earnings Reports of the Week

While Walmart’s upbeat commentary grabbed headlines, several other major corporations also reported their earnings this week, providing further insight into the health of the economy.

• Home Depot (HD): The top home improvement retailer adjusted its expectations, now anticipating a greater fall in annual comparable sales than previously forecasted.
• Cisco (CSCO): The networking giant exceeded earnings expectations, announced a 7% reduction in its workforce, and signaled a shift in its business focus.
• Deere (DE): The world’s largest manufacturer of agricultural equipment reaffirmed its full-year net income outlook, signaling continued strength in the agriculture sector.
• Applied Materials (AMAT): The leading U.S. semiconductor equipment maker reported results showing a moderation in demand from China, reflecting broader geopolitical and economic challenges.

Market Reactions to 13F Filings

This week also saw the release of 13F filings, regulatory disclosures by major funds that reveal their quarterly equity ownership changes. These filings are closely watched by investors for potential market-moving insights.

One of the most notable moves came from Warren Buffett’s Berkshire Hathaway (BRK.A)(BRK.B), which disclosed a new stake in Ulta Beauty (ULTA), sending the beauty retailer’s stock soaring. Meanwhile, Bill Ackman’s Pershing Square Capital Management revealed a new position in Nike (NKE), following speculation by research firm Gordon Haskett that the shoe giant could be the next target for activist investors.

Sector Performance: Information Technology Leads the Way

All 11 sectors of the S&P 500 ended the week in positive territory, reflecting broad-based gains across the market. The Information Technology sector emerged as the clear leader, with a stunning 7.51% rise, supported by strong earnings reports and renewed investor confidence in growth stocks. The Consumer Discretionary sector followed with a 5.21% gain, buoyed by positive retail sales data and strong performance from major retailers like Walmart.

Breakdown of Sector Performance (August 9 to August 16):

1. Information Technology: +7.51% | Technology Select Sector SPDR Fund ETF (XLK): +7.67%
2. Consumer Discretionary: +5.21% | Consumer Discretionary Select Sector SPDR ETF (XLY): +5.04%
3. Financials: +3.21% | Financial Select Sector SPDR Fund ETF (XLF): +3.23%
4. Materials: +2.23% | Materials Select Sector SPDR Fund ETF (XLB): +2.27%
5. Industrials: +2.12% | Industrial Select Sector SPDR Fund ETF (XLI): +2.16%
6. Health Care: +1.92% | Health Care Select Sector SPDR Fund ETF (XLV): +1.93%
7. Consumer Staples: +1.60% | Consumer Staples Select Sector SPDR Fund ETF (XLP): +1.72%
8. Communication Services: +1.00% | Communication Services Select Sector SPDR Fund (XLC): +1.23%
9. Energy: +1.85% | Energy Select Sector SPDR Fund ETF (XLE): +1.19%
10. Utilities: +0.97% | Utilities Select Sector SPDR Fund ETF (XLU): +1.13%
11. Real Estate: +0.07% | Real Estate Select Sector SPDR Fund ETF (XLRE): +0.12%

Insights:

1. Positive economic data alleviated recession fears, driving market gains.
2. The Information Technology sector led the market with a 7.51% rise.
3. Investors now expect a smaller rate cut by the Federal Reserve.

The Essence (80/20)The Origins and Evolution of the 80/20 Principle The Discovery by Vilfredo Pareto In 1897, Italian economist Vilfredo Pareto uncovered a striking pattern in his study of wealth and... More: The S&P 500’s strong recovery reflects renewed investor confidence driven by favorable economic indicators, particularly in inflation and retail sales. The Information Technology sector played a pivotal role in this rebound, supported by a broad market rally. Key corporate earnings and strategic investments by major funds also influenced market dynamics.

The Guerilla Stock Trading Action Plan: Monitor upcoming economic data, particularly the labor market, to gauge the Federal Reserve’s next moves. Consider increasing exposure to the Information Technology sector, given its strong performance and market leadership. Stay informed about corporate earnings and strategic investments by influential funds for potential opportunities.

Blind Spots with Remedies

Overreliance on Short-term Economic Indicators:

Blind Spot: The market’s current optimism is heavily based on recent positive economic data. This can create a false sense of security, leading to potential complacency.

Remedy: Diversify your portfolio to include defensive sectors like Consumer Staples or Utilities, which are less sensitive to economic cycles. Regularly review long-term economic trends and indicators to maintain a balanced perspective.

Ignoring Federal Reserve Policy Uncertainty:

Blind Spot: The expectation of a smaller rate cut by the Federal Reserve may not fully account for the potential of sudden shifts in monetary policy, which could disrupt market sentiment.

Remedy: Stay updated on Federal Reserve communications and prepare for different scenarios by maintaining a mix of interest rate-sensitive assets and inflation-protected securities.

Sector Overexposure:

Blind Spot: The strong performance of the Information Technology sector might lead to overexposure, increasing vulnerability if the sector faces a downturn.

Remedy: Rebalance your portfolio to ensure diversification across various sectors, including those that may perform well in different market conditions, such as Healthcare or Financials. Regularly review sector allocations to adjust for changing market dynamics.

SPY Technical Analysis (daily)

The chart for the S&P 500 SPDR (SPY) on the daily timeframe shows a recent bullish trend. The price has been in an upward movement since the recent dip in early August, breaking above the 50-day moving average (currently at 547.77) and closing near 554.31, signaling strength in the short term. The 200-day moving average at 507.13 acts as a strong support, which has been respected during previous declines.

Volume shows a significant increase, supporting the recent upward price movement, which suggests that the bulls are in control. The Relative Strength IndexIn the world of technical analysis, the Relative Strength Index (RSI) stands as a cornerstone tool for traders seeking insights into market momentum. Developed by J. Welles Wilder ... More (RSI) at 59.51 is above the midline, but not yet in overbought territory, indicating there is still room for the price to move higher before facing significant resistance.

The On-Balance VolumeThe On Balance Volume indicator (OBV) is a technical analysis tool used to measure the flow of money into and out of a security over a specified period of time. It is a cumulative ... More (OBV) line has been trending upward, suggesting that the buying pressure is accumulating, further confirming the bullish sentiment. The Stochastic RSIIn the realm of technical analysis, the Stochastic RSI (StochRSI) emerges as a powerful tool for traders seeking to navigate market dynamics with precision. Developed by Tushar S. ... More has crossed above the 0.5 level, indicating a potential continuation of the bullish trend, though it’s not yet in overbought territory.

The Chaikin OscillatorNamed after its creator Marc Chaikin, the Chaikin Oscillator stands as a formidable tool in the arsenal of technical analysts. This oscillator is designed to measure the accumulati... More is also trending upwards, reflecting increased accumulation and suggesting that the market is under buying pressure. The MACDThe MACD indicator is essentially a momentum indicator that shows the relationship between two different moving averages of price. The MACD is the difference between the 12-period ... More oscillator shows a bullish crossover, with the MACD line crossing above the signal line, and a positive histogram, further reinforcing the bullish trend.

Time-Frame Signals:
3-Month: Buy – The bullish crossover in the MACD and positive price action above the 50-day moving average indicate potential for continued upward movement in the near term.

6-Month: Buy – Given the strong support at the 200-day moving average and upward trend in the OBV, the longer-term outlook remains positive.

12-Month: Hold – While the overall trend is bullish, the market is nearing potential resistance levels. Monitoring for any signs of weakening momentum is advised, but the longer-term trend remains intact.

SPY Technical Analysis (weekly)

The weekly chart for the S&P 500 SPDR (SPY) shows a strong long-term uptrend, with the price continuing to hold above key support levels. The price has recently rebounded from a dip and is trading above the Anchored Volume Weighted Average Price (VWAP) set from August 2023 at 481.95. This level has acted as a dynamic support, and the current price near 554.31 indicates strong bullish momentum.

Volume has remained stable, with recent weeks showing an increase, which is a positive sign as it suggests that the recent rally is backed by solid participation from buyers. The On-Balance Volume (OBV) line continues to trend upwards, reflecting consistent accumulation over the longer term.

Time-Frame Signals:
1-Year: Buy – The price has been steadily climbing above the VWAP and remains in a strong uptrend. The current bounce back after a short-term correction suggests the continuation of this bullish trend over the next year.

2-Year: Buy – The consistent rise in the OBV and strong price performance over the past two years indicate sustained bullish momentum, which could continue driving prices higher in the medium term.

3-Year: Hold – While the long-term trend remains bullish, potential corrections could emerge, especially considering the significant gains already made. Monitoring for any signs of trend reversal or weakening momentum is advised over this extended period.

Past performance is not an indication of future results, and this article should not be considered as investment advice. Always conduct your own research and consider consulting with a financial advisor before making any investment decisions. 🧡

Looking Ahead: A Strong Rebound with Cautious Optimism

The S&P 500’s impressive performance this week highlights a significant rebound in investor confidence, driven by encouraging economic data and strong earnings reports from key companies. However, the market remains cautious, with eyes on upcoming labor market data and Federal Reserve decisions. As the S&P 500 inches closer to its record high, the debate over monetary policy and the economy’s resilience will continue to shape market sentiment in the weeks ahead.