Welcome to our weekly Market News Roundup 🗞️

A big shoutout to our 17 new subscribers this week, thank you for being here! Here’s the agenda for today’s quick news review:

1. 🖼️ Big Picture: this week’s overall market sentiment

2. 📊 Interesting Set-Ups: a couple stocks worth watching

3. 🔭 Market Mood™ outlook for the week ahead

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Part 1: Overall News Sentiment 🖼️

• Overall news: +23% sentiment, bullish 🟢

• S&P 500 (large cap) news: +35% sentiment, bullish 🟢

• Russell 2000 (small cap) news: +75% sentiment, highly bullish 🟢🟢

• Overall news sentiment scores, past 8 weeks:

  • 🔴 June 27th: net bearish, -8%

  • 🔴 July 4th: net bearish, -24%

  • 🔴 July 11th: net bearish, -16%

  • 🌑 July 18th: net neutral, -3%

  • 🟢 July 25th: net neutral, +8%

  • 🟢 August 1st: net bullish, +16%

  • 🟢 August 8th: net bullish, +13%

  • 🟢 August 14th: net bullish, +23%

The mood measured in stock market news coverage finished on the bullish end of the spectrum again this week, coming in at an overall net sentiment score of +23%, marking 4-straight weeks of net-positive news sentiment — our longest such streak since January. In particular, the mood expressed about small-cap stocks rose above the rest, with the sentiment measured about stocks in the Russell 2000 finishing at a strongly bullish net score of +75%. Here’s this week’s trending news topics and events:

📈 1. Stocks continue their climb, energy leads Q2 earnings szn

• Indexes: the major US stock indexes continued their upward trend, each posting returns exceeding 3% as investors welcomed indications of modestly easing inflation. For the S&P 500 and NASDAQ, it was the fourth positive week in a row (the longest string of weekly gains since November 👀), while small caps outperformed as well, with the Russell 2000 adding around 5% for the week, despite pulling back sharply on Thursday.

• Earnings: while the nearly-complete Q2 earnings season hasn’t quite disappointed, S&P 500 companies would be posting an overall earnings decline if we excluded the energy sector. Energy earnings are up by an average of 299% (!) year-over-year (by far the most of any sector), carrying the full S&P 500 to an average YoY growth of +6.7%; without energy's contribution, average earnings have shrunk roughly -3.7%.1

📑 2. Inflation? I hardly know ‘em…

• July CPI: although inflation remains near its highest level since the early 1980s, the latest monthly Consumer Price Index report brought some relief, which triggered a stock market rally on Wednesday. Inflation rose at an annual 8.5% rate in July, marking a slowdown from the previous month’s 9.1% figure. Falling gasoline prices were largely responsible for the decline.

• Housing: looking ahead for clues into next month’s CPI report, newly-listed homes for sale dropped 12% year-over-year during the four weeks ending August 7th, the steepest decline since early-pandemic June 2020; homebuyer demand has slowed in part due to higher mortgage rates.

📊 3. Other indicators on the mend:

• Consumer Sentiment: Friday’s preliminary monthly report of the University of Michigan’s consumer sentiment index revealed rising sentiment amongst consumers, marking the second monthly gain since it fell in June to the lowest level on record, dating back to 1952. The report also indicated that consumers’ future inflation expectations improved, but remain elevated.

• Market Volatility: the Cboe Volatility Index ($VIX) — which measures investors’ expectations of short-term US stock market volatility — dropped 8% this week, marking 8 consecutive weekly declines. As of Friday’s market close, the VIX is now about 43% below a recent peak set back in mid-June.

Part 2: Stocks to Watch 🔥🧊

here’s a quick look at two notable stocks to keep an eye on based on their sentiment expressed in stock market news coverage: CVS Health & Coinbase

1. CVS Health ($CVS) 💊 bullish sentiment 🟢

this week: 🔺+71% news sentiment | 🔺+4% stock price

The nation's 2nd-largest drug store chain CVS Health finished this past week with highly bullish🟢 sentiment expressed in news coverage, ending the week with a net sentiment score of +71% and rallying +4% in share price to end at $106.39. CVS's optimistic conversation came in reaction to its strong Q2 earnings outing earlier this month, in which it comfortably beat consensus analyst earnings estimates (EPS $2.40 vs. $2.17 expected) and revenue estimates ($80.6B vs. $76.4B expected) and sent positive signals for the remainder of 2022.

Following the call, CVS confidently doubled down by increasing its earnings outlook for the rest of the year, from roughly $8.30 earnings per share to $8.50. This was particularly notable, given that CVS’s revenues during Q2 of last year were being carried by COVID-related revenues, including both COVID tests and vaccinations — the company attributed this year’s recent growth substitutes to more frequent customer visits and larger average purchase sizes. Impressively, same-store sales increased 8% YoY, far exceeding the estimated drop of -0.3%. Building on the momentum, CVS said Wednesday it plans to acquire or take a stake in a primary-care company by year’s end to further its foothold in the healthcare market. All positive signs for near- to mid-term investors:

2. Coinbase ($COIN) 🪙 bearish sentiment 🔴

this week: 🔻-61% news sentiment | 🔻-8% stock price

Cryptocurrency exchange platform Coinbase came out as one of the most bearish🔴 stocks in this week's news coverage, finishing with a net sentiment score of -61% and falling -8% in share price to $90.49. This came primarily as the result of the company's dump of a Q2 earnings report, in which it announced a -$1.1 billion-dollar loss at -$4.98 EPS — far below consensus estimates of a loss of -$2.65 EPS, and a stark contrast to its +$1.59M in the same quarter last year. Coinbase's net revenues in Q2 declined -64% vs. the previous quarter to $808.3M

As the world’s 2nd largest crypto exchange (behind Binance), most analysts were more-or-less unsurprised that Coinbase lost money this quarter, given the state of the cryptocurrency market; the global crypto market cap fell by half-a-trillion (-$501.8B) in Q2 2022, Bitcoin alone decreased -56.2% in value — a period that most are calling a “crypto winter”. But what is surprising is the sheer magnitude of Coinbase’s loss, especially in comparison to its peer exchanges. Coinbase’s total trading volume declined -30% in Q2, compared to an average decline of -3% across all other venues, leading to a considerable loss in market share. Other platforms like Binance have also done away with Bitcoin trading fees recently, potentially forcing Coinbase’s hand to do the same (either reducing revenues further, or losing more market share in suit). All in all, Coinbase’s recent underperformance has led to a slew of analyst downgrades:

Part 3: Market Mood™ Outlook 🔭

In the 4th straight week of net bullish🟢 news sentiment and rising stock prices, the highlight of this week’s news coverage was Wednesday’s release of the July Consumer Price Index report from the US Bureau of Labor Statistics. This month’s reading revealed a slight decline in headline inflation at a reading of 8.5% year-over-year (versus expectations of 8.7%), below last month’s 9.1% reading.2 This month marked only the second time the CPI declined month-over-month since October 2021, driven largely by lower fuel and energy prices, and aided by moderating core inflation prices in areas like used cars, select apparel, and airline fares.

The Darker Picture: 🌩️

Of course, it’s important to note here that inflation is still near 40-year highs (perhaps still near the highest that most readers of this newsletter have seen in their lifetimes), and there’s still quite a ways to go for the US economy; a recession is still a very likely reality, and interest rate hikes from the Fed are still expected for the remainder of the year (which in itself could exacerbate a recession) — all in all, we will likely need to see at least two consecutive monthly inflation declines over the coming months for any of that to materially change. There are still plenty of factors that could send our inflation course right back upwards in the near future; for more on these potential outcomes, I’d recommend listening to the most recent episode of the All In Podcast here:

The Brighter Picture: ☀️

HOWEVER, the good sign here is the meaningful change in attitude about inflation expressed in news coverage compared to previous months. Sentiment measured this week about this month’s inflation report was a notably optimistic departure from the bearish trend of recent reports; this month’s reading marked the first time in recent memory that sentiment in coverage about inflation was more positive than general non-inflation new coverage (see chart above). This is a strong positive sign for investors, that perhaps we are setting the table for a meaningfully optimistic change in market activity over the coming weeks. Coupled with the recent uptick in consumer sentiment (UofM CSI, mentioned earlier) and steadily declining investor expectations of market volatility, things have not looked this optimistic in a while. 

As always, the future remains to be seen. That’s all for this week — let us know if there’s anything we missed by commenting below, replying to this email, or sending us a text at +1 (833) 878 9106. And if you liked this post, please support us by clicking the like button! Best of luck to all of you in the markets this week, stay safe out there, and thank you for reading. 😎

Disclaimer: This is not financial advice or recommendation for any investment. The content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice. Credit to the respective teams at John Hancock Investment Group and Edward Jones cited below: