Welcome to our weekly Market News Roundup 🗞️

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

Part 1: Overall News Sentiment 🖼️

• Overall news: +13% sentiment, slightly bullish 🟢

• S&P 500 (large cap) news: +5% sentiment, bullish 🌑

• Russell 2000 (small cap) news: +38% sentiment, neutral 🟢

After another big week of corporate earnings and a solid jobs report on Friday, the mood measured in stock market news coverage finished slightly bullish at an overall sentiment score of +13%, marking the second consecutive week of net-optimistic news sentiment. Looking closer, conversation expressed about larger-cap value stocks in the S&P 500 came out with a net neutral score of +5% this week, while smaller-cap conversation about growth stocks in the Russell 2000 came in at a stronger bullish score of +38%. Here’s this week’s trending news:

📈 1. Stocks finish above even, Q2 earnings remain resilient:

Though stocks cooled off in the wake of the previous week’s rally, the major U.S. indexes finished slightly up overall. The NASDAQ gained more than +2%, the S&P 500 gained a measly +1%, and the Russell 2000 gained nearly +3% as growth stocks generally outperformed their value counterparts. Earnings performance continued to improve, as second-quarter profits at companies in the S&P 500 are now expected to increase 6.7% vs. the previous year — that’s up from the 5.8% rise projected at the end of the previous week. As of Friday, roughly 87% of companies had reported results as of Friday.1

📑 2. July jobs report provides a boost, exceeding expectations:

Despite the recent slowdown in U.S. economic growth, the labor market continues to exceed expectations. The government reported on Friday that the economy added 528,000 jobs in July — far exceeding most economists’ forecasts— and unemployment slipped to 3.5% from 3.6%. This latest monthly employment gain marked a milestone, as the US economy has now recouped the 22 million jobs lost in the initial months of the pandemic nearly two and a half years ago. The unemployment rate also returned to its February 2020 pre-pandemic level; both are solid bright spots in a news landscape peppered by “recession” talk.

📊 3. Mixed results on the alternative asset fronts: Oil & Cryptos

The price of U.S. crude oil fell below $90 per barrel for the first time since the Russia-Ukraine war began in February. Oil was trading around $88 on Friday afternoon for an overall decline of nearly 10% for the week, with the national average price for a gallon of gas now hovering at $4.06. As for cryptocurrencies, the global crypto market cap climbed back up 5% to $1.13T after slipping in the previous two weeks, driven by a +9.3% rally from Ethereum (now trading at $1,770.34) and a +5.5% rally from Bitcoin (now trading back at $24K).

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: Roblox & Alibaba

1. Roblox ($RBLX) 🕹️ bullish sentiment 🟢

this week: 🔺+84% news sentiment | 🔺+16% stock price

Mobile gaming platform Roblox finished this past week with highly bullish mood expressed in market news coverage, coming in at a sentiment score of +84% and climbing +16% in share price to $49.24. This overarching optimism was catalyzed by an increased price target of $40 from an analyst at MKM Partners on Monday (which the stock easily surpassed by the time Friday was over). In their rating hike, the analyst noted that Roblox product bookings are trending surprisingly higher over the past 3 months, strengthened by faster than anticipated growth in daily active users (DAU’s) of the Roblox platform. The MKM analyst also issued a rare mea culpa, saying his previous downward price targets of Roblox were overly pessimistic.

Zooming out, the general consensus on Wall Street appears to be that Roblox has been drastically oversold over the past few months — the stock has lost more than 80% of its value since trading at an all-time high of $134 back in November, albeit driven by narrowing profit margins and a slowing pace of user growth in the face of recession. Yet despite the headwinds, the company appears to be on the recovery path and doing well as of late, reporting $195M in revenues at a +30% year-over-year increase in its previous earnings report in May; and with its Q2 report expected to be released this Tuesday, investors are hoping for more of the same. All in all, while the stock may remain somewhat volatile over the near term, it’s still a top metaverse contender with a wider moat than you might expect, with plenty of room to grow in share price compared to last year. More here:

2. Alibaba Inc. ($BABA) 📦 bearish sentiment 🔴

this week: 🔻-64% news sentiment | 🔺+4% stock price

Chinese e-commerce giant Alibaba has had a rocky road recently — this week came in with a strongly bearish net news sentiment score of -64%, despite rallying roughly +4% in share price to finish the week at $92.50, the stock remains nearly 75% below its late 2020 all-time high. The negative mood came as the result of the company’s fiscal Q1 report on Thurday; despite narrowly beating consensus earnings estimates at 22 cents per share on sales of $30.7B, Alibaba reported 0% revenue growth year-over-year, its worst quarterly result in company history.

The company’s flat revenues were due to a storm of challenges over the past three months, including widespread COVID-19 lockdowns domestically in China and compounding supply chain problems. While some analysts argue that this could be near the bottom for Alibaba’s stock if the Chinese economy opens back up in the near future, others cited the company’s recent e-commerce workforce cuts of nearly 10,000 employees in June as a reason to expect more downward momentum over the near term. All in all, the company remains heavily reliant on its e-commerce sales as its primary driver of profits (with recent forays into non-commerce cloud and logistics businesses failing to pan out thus far), so if cutting back on labor isn’t enough to help save on its retail profit-margins, then we might expect the road to remain bumpy for Alibaba for awhile:

Part 3: Market Mood™ Outlook 🔭

News sentiment finished net bullish🟢 for the third consecutive week, reversing the bearish trend of the past two months (shown below) as the markets have staged an impressive recovery from their mid-June lows. This overall rally has been aided by weaker commodity prices, easing inflation expectations, and lower bond yields, accompanied by Friday’s surprisingly strong US employment report. However, with the jobs gains suggesting the Fed will have to stay aggressive in its fight against inflation, additional near-term momentum for this rally may be difficult to achieve, and markets could be entering a choppy phase in the months ahead.2 We envision a few potential economic and market scenarios over the coming months, outlined below:

Weekly net news sentiment scores, past 8 weeks:

• 🔴 June 20th: net bearish, -17%

• 🔴 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%

Scenario A: recession = over, bring on the uptrend

If Powell and Biden are correct in saying that we’re only in a “technical” recession and bound for rebound, then perhaps the bear market actually ended in June and we’re on our way to recovery, with smaller-cap stocks that are more sensitive to economic growth in position to assume market leadership. HOWEVER, given the Fed still seems to be a ways from concluding its tightening campaign (and the fact that the only time a “technical” recession didn’t become an actual recession in the US was back in 1947), then even though jobs and corporate earnings have not yet declined, it appears unlikely that the worst of economic contraction is over. This scenario seems improbable to me, but remains a possibility at this point.

Scenario B: official contraction narrowly avoided, economic growth remains weak

In the middle scenario, the current economic growth scare (ie. two consecutive quarters of negative GDP) proves to be a midcycle slowdown and not something worse. Inflation gradually eases without requiring the Fed to overtighten, and rate hikes officially pause by early next year. Growth remains weak, market volatility remains high, and the major indexes are rangebound in the coming months. In the past, the Fed has not had a great track record of pulling off tightening without pushing the economy into recession — however, recent declines in commodity prices + the Fed’s outsized rate hikes early on suggest that perhaps interest rates don’t have to rise much more from here.

Scenario C: we’re in a bear rally, mild recession in 2023

Last (and least favorable), broad inflation pressures suggest the Fed has more work to do in order to fight rising prices, and the effects of previous rate hikes have not yet fully materialized on the economy as far as jobs and corporate earnings go. Restrictive policy drives unemployment higher and earnings lower, turning the market’s recent gains into a false (bear) rally. This scenario appears to be the most likely to me based on historical recession outcomes, though the strength of the labor market thus far signals that a true recession would likely be mild if it does fully materialize. Looking ahead, we’ll need to keep an eye on this week’s July Consumer Price Index on Wednesday for more clues on the trajectory of inflation, along with the remaining slate of Q2 corporate earnings scheduled over the next few weeks to see where we end up.

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, 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: