Welcome to our weekly Market News Roundup 🗞️

After a quick break for Independence Day, we’re back baby. Here’s the agenda:

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: -16% sentiment, neutral 🌑

• S&P 500 (large cap) news: -8% sentiment, neutral 🌑

• Russell 2000 (small cap) news: +0% sentiment, neutral 🌑

Sentiment expressed throughout stock market news coverage came in at a generally neutral rating across the board last week, finishing with a slightly bearish overall score of -16% on our scale from -100% to +100%. Zooming in, news coverage about the larger-cap S&P 500 finished with a sentiment rating of -8%, while news coverage about the smaller cap Russell 2000 finished dead even at a neutral score of 0%. The mood of last week’s news was driven by the following topics and events:

📈 1. Stocks bounced around to finish the week higher

Stocks ended the week with modest gains after reversing course from their negative trend over the prior week. There was a wide divergence across the major US indexes, with smaller cap stocks seeing more of the bounce — the NASDAQ added +5% and the Russell 2000 added nearly +4%, while the S&P 500 and Dow rose +2% and +1%, respectively.1

📑 2. Bracing for lower Q2 earnings expectations

Relative to recent quarters, expectations are low heading into earnings season this week, which opens at the end of this upcoming week as major banks begin reporting their 2nd-quarter results — across the board, analysts and market commenters appear to be bracing for some amount of earnings compression. As of Friday, analysts surveyed by FactSet were expecting companies in the S&P 500 to post earnings increases at an average clip of +4.3% year over year — which is less than half of the +9% growth rate we saw last quarter.

📊 3. Economy: jobs report exceeds while the yield curve inverts

Last week we saw mixed signals on the economic front. Despite high inflation, the US labor market continued to post strong growth in June. The economy generated roughly 372,000 new jobs last month (exceeding most economists’ forecasts — while the unemployment rate held steady at 3.6% for the 4th straight month. On the other side of the pillow, last week the yield curve inverted for the second time this year, as the yield of the 2-year US Treasury bond rose above the 10-year bond on Tuesday; an indicator of concerns about short-term interest rates and recession potential.

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: Teladoc (again) and Uber

1. Teladoc Health ($TDOC) 🩺 bullish sentiment 🟢

this week: 🔺+95% news sentiment | 🔺+28% stock price

In our previous newsletter post we discussed telemedicine company Teladoc, which was one of the most bearish stocks in news coverage two weeks ago after a set of class-action lawsuits were released alleging that the company’s executives had misled investors about its business and financial prospects — rose +28% that week as part of the broader small-cap uptrend. Now, we’re revisiting Teladoc after the stock climbed an additional +24% this week, this time behind more bullish pretences. The question: is it’s rise too good to be true?

This week’s optimism about Teladoc in news coverage came as the result of two somewhat small catalysts: first was the company’s announcement that it will add new features to Primary360 (its primary service for facilitating virtual primary care visits via phone or video). Second was a set of optimistic comments from Piper Sandler analyst Jessica Tassan, projecting that the company’s second quarter should be in line with consensus earnings estimates. Yet zooming out — even despite its +43% rally over the past month — the stock remains down -73% over the past year, signaling that its recent drastic swing from bearish to bullish sentiment bears more speculation than material upside. On the whole, the company is still expected to lose money over the next two quarters and continues to face strong competition from within the telehealth space, so for me it’s hard to say that this week’s bullishness is enough to justify buying. More on Teladoc’s outlook here:

2. Uber Inc. ($UBER) 🚕 bearish sentiment 🔴

this week: 🔻-82% news sentiment | 🔺+8% stock price

Despite bouncing roughly +6% in share price last week along with the rest of the growth stock market, ridesharing giant finished with some of the most bearish sentiment of any stock in news coverage (-82% overall), after a slew of more than 100,000 leaked internal documents from between 2013 to 2017 revealed that the company used morally questionable and potentially illegal tactics in its dealings with foreign governments during its rise to global dominance.

The massive leak of documents — released in an investigation by The Guardian that’s now being called the “Uber Files” — showed how Uber courted and lobbied top political leaders such as Emmanuel Macron and ex-EU commissioner Neelie Kroes to subsidize its controversial UberPop service (which allowed unlicensed drivers to offer rides at low prices and undercut existing taxi services) during its push to launch and legalize ridesharing across Europe over the past decade. The investigation also revealed the company’s usage of an internal data “kill switch” deployed to block law enforcement from accessing company data during office raids across Europe while authorities attempted to crack down on the app, which was illegal in several countries at the time. More on the implications here:

Part 3: Market Mood™ Outlook 🔭

As we wrap up the first full week of the second half of 2022, stock market news sentiment sits teetering in highly neutral, highly uncertain territory. One the one hand, stocks ended the week in a rally, aided by some short-term hope from a solid June employment report. Yet on the other hand, we are beginning to set into a Q2 earnings season that the majority of analysts expect to be muted compared to Q1, with the potential for a bonafide US recession remaining more probable than not by the end of the year. Here’s what it means over the near-term, and where to focus:

First, can we say we’re in a recession?

The US Commerce Department released its third (and final) estimate of first-quarter GDP last week, revealing that the US economy contracted -1.6% over the first three months of the year (it’s first quarterly decline since the start of the pandemic). On top of this, indicators of consumer confidence have plunged in recent weeks as the result of rising gas, food, and other prices, painting a more negative picture for Q2 — and if consumers worry enough to cut back dramatically on spending, then we could see some potential for a self-fulfilling prophecy for continued negative GDP growth (keep in mind a recession is officially defined as two consecutive quarters of negative GDP growth). All in all, while the probability of a true recession remains likely, it’s not inevitable — we’ve seen similar periods of non-recessionary economic slowdowns in the past, and if demand can avoid stagnating, then we could be in luck; more on the here:

Okay, let’s say there is a recession, now what?

Assuming this really is a recession, the good news is that we’ve started off in better-than-average recessionary landscape; the labor market still remains strong up to today, most households have comparatively low levels of debt (vs. previous recessions) and inflation has shown some slight signs of receding already — all signaling that a true recession could be somewhat shallow. Now assuming it happens, the big question: where to invest your money?

We will likely see the overall S&P 500 index trend lower over the coming months, but given that growth stocks have already been in a bear market for almost 18 months, perhaps approaching a “bottom” sometime soon. Looking back, the stock market typically faces the brunt of pessimism early on during a down turn, typically beginning recovery during the recession.2 In particular, with a large portion of the pessimism priced in, now seems like a decent time to begin averaging into solid longer-term positions (though buying the broader market (S&P 500, NASDAQ, etc.) should probably wait. For some potential ideas of where to look (or where to wait), we reviewed the sentiment of the 30 largest US stocks over the past month (chart above):

• Three stocks finished with outsized optimism over the past 30 days — Johnson & Johnson , Chevron , and Coca Cola , signaling bullishness in the realms of healthcare, energy, and consumer beverages.

• Three stocks finished with considerable pessimism — Caterpillar , JPMorgan Chase , and Home Depot , signaling bearishness in the realms of business/home construction and banking.

I’m hoping to do a bit more of a deep dive on these stocks and their respective industries over the coming weeks; let me know if you’d be interested by liking, commenting below, replying to this email, or sending us a text at +1 (833) 878 9106. 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.