US Macro Strategy Weekly Report – 31 July 2023

James Ooi/ uSMART Market Strategist

Over 13 years of experience in buy-side and sell-side of capital markets

Former Fund Manager of renowned asset management firm
Focus on fundamental analysis and macro-outlook for US & Singapore markets
SGX Academy trainer

This Week’s Market Outlook:

• This week's significant economic data in the United States includes: the ISM Manufacturing PMI and JOLTS Job Openings report on Tuesday, the ISM Service PMI on Thursday, and the Nonfarm Payrolls report on Friday.
• This week, companies representing 15% of the total market cap of the S&P 500 index will release their financial reports. Several important financial reports will be published on the following dates:

July 31st (Monday): ON Semiconductor, Arista Networks, SoFi

August 1st (Tuesday): Uber, Pfizer, Merck, AMD, Starbucks

August 2nd (Wednesday): Kraft Heinz, PayPal, Shopify, Qualcomm, OXY, Unity, Robinhood, Mercado Libre, Etsy

August 3rd (Thursday): Warner Bros. Discovery, ConocoPhillips, Moderna, Apple, Amazon, Coinbase, Airbnb, Fortinet, Block, Coinbase, Cloudflare

August 4th (Friday): fuboTV, Nikola, Booking, Berkshire Hathaway

• According Factset, 51% of the companies in the S&P 500 index had released their earnings reports, and 80% of them reported higher-than-expected EPS as of last Friday. This has led investors to raise their earnings expectations for 2023 and 2024 to $219.41and $246.11 (Figure 1). The bottom-up target price by analysts for the S&P 500 is 4996.94 over the next 12 months, which is 9% above the closing price of 4,582.

Figure 1: S&P 500’s EPS for 2023 and 2024

Source: Factset, 28 July 2023

• The table  (Figure 2) below indicates the years when the S&P 500 returned more than 10% in the first half of the year and had negative performance in the prior year.
• In 87% of the cases, the 2nd half performance resulted in a positive return.
• The average 2nd half performance stands at 12.92%.
• The average 2nd half drawdown is -6.47%, with a median of -5.85% drawdown.
• If history repeats, there is a possibility of the S&P 500 providing a positive return in the second half of 2023. Additionally, the 2nd half average drawdown of -6.47% suggests that dip buyers may be looking at a relatively shallow drawdown to enter the market.

Figure 2:  In the year when the S& 500 returned more than 10% in the first half of this year, it was negative in the prior year (Since 1940)

Source: uSMART, Bloomberg, 22 Jul 2023

• In the past 20 years, August's average return for the S&P 500 is 0.08%, with positive returns in 12 of those years (Figure 3).

Figure 3: Monthly performance of the S&P 500 over the past 20 years.

Source: uSMART, Bloomberg, 22 Jul 2023

• The S&P 500 has seen a year-to-date increase of 19.34% and a month-to-date increase of 2.96% in July (Figure 4). It appears probable that the S&P 500 will achieve a 5-month winning streak in July unless it experiences a decline of 2.96% or 136 points tonight. Historically, after experiencing 5 consecutive months of growth, the 12-month average return stands at 10% (Figure 5).

Figure 4: Monthly performance of the S&P 500

Source: uSMART, Bloomberg, 28 Jul 2023

Figure 5: S&P 500 Performance after 5 Straight Up Months

Source: Sentimentrader

• This week's NAAIM Exposure Index number is 101.82 (Figure 6). As previously mentioned, the S&P 500 may not undergo an immediate correction once the NAAIM index reaches 100. Therefore, investors should avoid overinterpreting the high index number.

Figure 6: NAAIM Exposure Index and S&P 500

Source: NAAIM

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