How This Week’s Slate of Earnings Reports Could Impact the Market

NYSE: SPY | SPDR S&P 500 ETF Trust News, Ratings, and Charts

SPY – If you have a Gen Z member in your life, you might have learned that everything is either ‘epic’ or ‘mid’. [Note: Epic means amazing, and mid encompasses everything that falls short of epic.]. Well, this week is either going to be epic or mid. We have a packed slate of earnings including the biggest companies and an FOMC meeting. And, this comes at a time when the S&P 500 (SPY) is in the midst of a bear market rally that could go higher as bearish sentiment unwinds, or it could have us plunging to new lows if earnings disappoint or the Fed surprises on the hawkish side. Epic or mid, indeed. In today’s commentary, I want to update my thoughts on the bear market rally, and the optimal way to play this environment. I also want to share some thoughts on the auto sector and explore a couple of opportunities in that space. Read on below to find out more….

(Please enjoy this updated version of my weekly commentary published July 25, 2022 from the POWR Growth newsletter).

As usual, we will start by reviewing the past week…

Here is an hourly, 3-week chart of the S&P 500 (SPY):

From last week, we are up 3.6%. Gains are broad-based, although there is a bit more strength in the Russell 2000.

The bigger picture is that our expectations of a bear market rally were validated. And, this type of grind-up is exactly what we want to see as it’s evidence of short-covering.

Those in the TA world would call it a ‘lockout rally’ which is basically when the market is moving higher, but people are underinvested which means bulls and bears are both rooting for lower prices.

I think this bullish setup remains intact. We are primed for continued gains in the event of news that is less bad than expected given that expectations and sentiment are so negative.

But, there is also the risk of worse than expected earnings or the Fed coming out more hawkish than expected which could cause a sudden drop. And, this drop would likely be another attractive, low-risk, entry point.

So, this is certainly a challenging environment. It’s entirely possible that in terms of the bear market rally… this is it.

And, we are going to roll over to new lows. It’s also possible that this ‘lockout rally’ persists. I’m leaning towards the latter outcome but prepared to quickly change my mind if the facts prove me wrong.

Sometimes, we can come up with elegant, complete theories such as when we identified early this year that the Fed’s hawkishness and a slowing economy was a brutal combination for the stock market. This is not a time, where there is a simple way to encapsulate what’s going on.

Instead, we have what are most likely going to be bearish forces hitting the stock market (SPY) in terms of earnings and the Fed, but this is offset by the bullish forces of falling inflation and extreme levels of bearish sentiment.

Autos

In previous commentaries, I’ve talked about the auto sector. There is one silver lining for the economy in that auto production is finally returning (or will soon) to pre-pandemic levels as the chip shortage has eased.

Auto stocks really haven’t rallied as they are more impacted by the risk of rising recession. It’s kind of a similar situation to the travel stocks where the market is looking past the short-term jump in earnings and focusing on a longer-term outlook.

I do think this sector has a strong upside if/when the market fully priced in the recession and starts to price in the inevitable recovery. I think this should happen sometime at the end of the year or the first half of next year.

In particular, I like the auto parts stocks which are trading at ridiculously low valuations and would experience the biggest gain in earnings. This is a theme we will continue to monitor.

Final Thoughts

Last week, I wrote:

To sum up my thinking: We are in a bear market. The economy is slowing which means more pain is coming. However, I believe that the ‘window is open’ for a bear market rally.

In terms of the portfolio, we have marginally increased exposure but are ready to get back to a more neutral position if we break below the mid-June lows. 

Everything about this continues to be correct, although we are now nearly 10% higher than the mid-June lows. This means there is more risk in terms of taking new positions especially given the context of a bear market.

Therefore, I’m inclined to move up the level at which I would go back to neutral to 3,720 which is the July low and shouldn’t break if the bear market rally is intact.

What To Do Next?

The POWR Growth portfolio was launched in April last year and since then has greatly outperformed just about every comparable index…including the S&P 500, Russell 2000 and Cathie Wood’s Ark Innovation ETF.

What is the secret to success?

The portfolio gets most of its fresh picks from the Top 10 Growth Stocks strategy which has stellar +49.10% annual returns. I then take the very best stocks from this strategy and tell you exactly what to buy & when to sell, so you can maximize your gains.

If you would like to see the current portfolio of growth stocks, and be alerted to our next timely trades, then consider starting a 30 day trial by clicking the link below.

About POWR Growth newsletter & 30 Day Trial

All the Best!

Jaimini Desai
Chief Growth Strategist, StockNews
Editor, POWR Growth Newsletter


SPY shares were trading at $391.71 per share on Tuesday afternoon, down $3.86 (-0.98%). Year-to-date, SPY has declined -16.91%, versus a % rise in the benchmark S&P 500 index during the same period.


About the Author: Jaimini Desai


Jaimini Desai has been a financial writer and reporter for nearly a decade. His goal is to help readers identify risks and opportunities in the markets. He is the Chief Growth Strategist for StockNews.com and the editor of the POWR Growth and POWR Stocks Under $10 newsletters. Learn more about Jaimini’s background, along with links to his most recent articles. More...


More Resources for the Stocks in this Article

TickerPOWR RatingIndustry RankRank in Industry
SPYGet RatingGet RatingGet Rating
.INXGet RatingGet RatingGet Rating
DIAGet RatingGet RatingGet Rating
IWMGet RatingGet RatingGet Rating
QQQGet RatingGet RatingGet Rating

Most Popular Stories on StockNews.com


Updated 2024 Stock Market Outlook

The bull market continues to rage on with the S&P 500 (SPY) making new highs. That is the past...the question is what does the future hold? That is why 44 year investment veteran Steve Reitmeister provides this updated 2024 Stock Market Outlook to help you carve a path to outperformance the rest of the year. Read on below for the full story...

3 Energy Stocks Set to Soar Beyond Expectations

Given the geopolitical tensions, increasing global oil demand, and supply adjustments, the energy sector is poised for robust growth. Therefore, investors might consider investing in energy stocks TechnipFMC (FTI), Weatherford International (WFRD), and ChampionX (CHX), which are poised to exceed expectations. Keep reading…

Has Carnival (CCL) Stock Turned Into a Buy After Earnings Release?

Carnival Corporation (CCL) reported record revenue in its most recent quarter but still faces a negative bottom line. The collapse of Francis Scott Key Bridge brings more uncertainty to its financials. Given these events, what stance should one take with CCL stock? Read more to find out…

3 China Stocks Positioned for Long-Term Growth

Despite facing challenges, the Chinese economy has demonstrated resilience, as evidenced by recent robust industrial output and retail sales data. Given this outlook, it might be an opportune time to own three top-notch China stocks, JD.com, Inc. (JD), China Automotive Systems (CAAS), and Youdao, Inc. (DAO). Read on…

Investor Alert: “Buy the Rumor, Sell the News!”

Everyone knows that the Fed is going to cut rates at some point this year. That is the worst kept secret on the planet helping to explain how we keep making new highs for the for the S&P 500 (SPY). Unfortunately that creates an interesting predicament for stocks after rates are cut. Plus another hurdle in the 2024 Presidential election. Steve Reitmeister is here to share his insights on the market outlook along with a preview of his top 12 stocks to outperform. Read on for more...

Read More Stories

More SPDR S&P 500 ETF Trust (SPY) News View All

Event/Date Symbol News Detail Start Price End Price Change POWR Rating
Loading, please wait...
View All SPY News