Weekly Market Overview - Saturday, Jan. 29

By Sean of WarriorTrading.com

Saturday, January 29, 2022 3:30 PM EST

Last week was a turbulent one for the stock market, with the S&P 500 declining about 100 points, or about 1.9% as of Thursday’s close.

That might not sound like a lot as a number, but the VIX reached its highest level since November 2020 with a high of 38.94 on Monday, indicating that investors panicked a bit this week and bought some extra protection.

Right now, energy is the only sector to hide in as everything else craters.

What Happened Last Week?

The FOMC meeting concluded, leaving the bound for interest rates unchanged between 0% and 0.25%, a range they’ve maintained since the coronavirus struck.

Fed Chair Powell continued with his more hawkish tone, projecting rate hikes “soon,” with the Fed indicating a move away from the “very accommodative policies” they adopted in response to the pandemic. In their view, the labor market is tight and they can tighten monetary policy considerably without harming the labor market.

Lots of Crypto Chatter

Russian President Vladimir Putin struck a surprisingly positive tone on crypto this week when he backed a government proposal to tax and regulate crypto mining instead of banning it.

Putin’s backing of crypto miners comes as US Senator Elizabeth Warren makes inquiries into US-based crypto miners about their energy usage, and US President Joe Biden prepares to issue an executive order to regulate crypto as a matter of national security.

Ackman Buys Netflix

Bill Ackman of Pershing Square Capital Management bought over 3 million shares of Netflix (NFLX) after the stock’s disappointing earnings report.

The stock shot up 10% in response to Ackman’s announcement, although the stock is still in a slump.

Tesla Disappoints on Earnings Report

The quintessential stock Tesla (TSLA) fell 11.5% on disappointing earnings.

The company actually beat earnings expectations, reporting $2.54/share vs. the $2.11 expected, and $17.7 billion in revenue vs. the $16.1 billion expected. But that just goes to show that market expectations are different from Wall Street analyst expectations. It’s clear the market was expecting more growth or more positive developments.

It’s possible that the market was simply expecting more updates than the company was willing to give, as CEO Elon Musk promised on Twitter that he’d give a “product roadmap update on next earnings call” back in December, only to mention nothing on the call.

Surprisingly Good GDP Growth

GDP quarter-over-quarter growth for Q4 2021 came in at 6.9%, roundly beating expectations of 5.5%.

Economic Data Coming This Week

Tuesday, Feb. 1: ISM Manufacturing Index.
Thursday, Feb. 3: Initial and Continuing Unemployment Claims.
Friday, Feb. 4: Nonfarm Payrolls, Unemployment Rate.

This upcoming week we get a new PMI print from the ISM report, which is always very telling about the condition of the “real economy.” If you’re unfamiliar, it’s a survey of purchasing managers for manufacturing companies.

ISM interviews the purchasing managers and asks them about business conditions like how much inventory is building up, where the balance between supply/demand is, how much new orders are coming in, if they’re having problems sourcing items, etc.

The PMI is seen as a “nowcasting” indicator of GDP, which is like predicting the present. In other words, you can see it as a leading indicator of GDP; a look at the GDP numbers before they show up in the official reports.

Here’s the current chart. Readings over 50 indicate a growing economy.

What I like about the report is that they break down manufacturing industries by their level of growth that month, which might key you into some emerging trends.

Earnings Next Week

One of the main discussions around earnings season right now is profit margins. Can companies retain their profit margins amid inflation, a tight labor market, reduced consumer spending, and supply chain disruptions?

Of the companies that have reported earnings in the S&P 500 so far this earnings season, 68% beat their revenue expectations, while 79% beat earnings expectations, according to Schwab. Schwab’s market strategist Liz Ann Sonders says these beat-rates are lower than the last several Q1 earnings seasons.

Financials in particular are suffering this earnings season, with expectations for them to decline 25% compared to Q4 last year. Two of the giant investment banks, Goldman Sachs (GS) and JP Morgan (JPM), dropped disappointing reports earlier this month, which is surely putting a weighing on the sector.

Here are the significant companies reporting this week.

Tuesday, Feb. 1