Welcome to our weekly Market News Roundup 🗞️

A huge shoutout to our 32 new subscribers this week, thanks for being here! 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

Part 1: Overall News Sentiment 🖼️

• Overall news: +16% sentiment, slightly bullish 🟢

• S&P 500 (large cap) news: +14% sentiment, slightly bullish 🟢

• Russell 2000 (small cap) news: -25% sentiment, bearish 🔴

In a big week of stock market and economic activity to close out the month of July, the mood measured in market news coverage came out slightly bullish, finishing with a net sentiment score of +16% across all articles published. Conversation expressed about large-cap stocks in the S&P 500 scored a slightly bullish net sentiment of +14%, while articles about stocks in the smaller-cap Russell 2000 finished net bearish at -25%. Here’s this past week’s highlights:

📈 1. Stocks rally behind better-than-feared earnings

Markets surge: after a subdued start to the week, the major US stock indexes rallied Wednesday after the Fed’s rate hike announcement, with the S&P 500, Russell, Dow, and Nasdaq all finishing the week up 2-4%. In particular, the NASDAQ Composite Index had its biggest one-day gain in 2 years, surging +4% on Wednesday.

Earnings surprise: tech giants , , and carried the market after posting earnings results that beat analyst estimates this week, providing some relief as we prepare for the biggest week of earnings this week (with 50% of S&P 500 companies expected to report Q2 earnings over the coming 5 days).

📑 2. GDP contracts for the 2nd straight quarter (-0.9%)

The second-quarter US GDP reading on Wednesday revealed the US economy shrunk by -0.9% last quarter (below the consensus estimate of a +0.8% reading).1 This officially puts us in a “technical” recession (ie. two consecutive quarters of GDP decline) — though the NBER (which formally tracks the metric) claims the economy is not quite in an official recession…yet.

📊 3. The Federal Reserve hikes rates again by +0.75 points

In continued efforts to dampen record inflation, the U.S. Federal Reserve enacted another sizeable 0.75 percentage point rate hike on Wednesday, taking its benchmark rate to a range of 2.25% to 2.50%. This is the Fed’s second consecutive 0.75-point interest-rate hike, bringing us close to the Fed’s estimate of a “neutral” rate, and indicating an official end of the post-pandemic easy money policy. Many expect the Fed may now start to hike rates at a more gradual pace going forward.

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: GE and GameStop

1. General Electric ($GE) 💡 bullish sentiment 🟢

this week: 🔺+96% news sentiment | 🔺+9.7% stock price

Legacy electronics and appliances mainstay General Electric finished this past week with some of the most bullish sentiment expressed in market news coverage, coming in at a score of +96% after posting 11-straight daily gains in share price over the past two weeks (its longest such streak of the past 50 years). This impressive surge — which has brought up 20.15% to a $73.91 share price — has been fueled in part by the company’s Q2 earnings release last Tuesday, in which GE beat analyst estimates and revealed surprisingly positive free cash flows.

Highlights from GE’s quarterly report included a strong reduction in its total debt (down -47% to $35M year-over-year), bringing the company to a narrowed net loss of $857M or $0.78/share for the quarter (compared to $1.19B or $1.08/share last year). The company also announced progress on plans to split into three separate “well capitalized” and “investment-grade” companies focused on the aviation, healthcare, and energy sectors throughout 2023-2024. While GE’s total revenues grew 2.2%, perhaps most significant was the +27% growth contribution from its aerospace segment, driven by “robust” post-pandemic customer demand:

2. GameStop ($GME) 🎮 bearish sentiment 🔴

this week: 🔻-93% news sentiment | 🔻-2.8% stock price

Video game retailer and meme-trader favorite GameStop finished with some of the most bearish mood expressed in Wall Street news coverage this week, finishing with a net sentiment score of -93% after falling in share price for 4-straight days following its recent stock split. Last Friday, began trading on a split-adjusted basis, meaning one share is now worth one-fourth of what a share was before the split (a strategic play to reduce the cost of individual shares and incentivize more retail trading transactions).

Yet perhaps the biggest thing weighing on GameStop’s news sentiment was Wednesday’s negative GDP report, which spurred speculation about the potentially harsh reality of a recession for second-hand retailers like GameStop — especially given the company is already treading water and struggling to generate positive earnings, confounded by the poor timing of its recent entry into the collapsing cryptocurrency and NFT markets, with many analysts now expecting a continued “crypto winter”. More on GameStop and other retailers’ near-term prospects here:

Part 3: Market Mood™ Outlook 🔭

As we cap off the final week of July, stock market news sentiment hovers in optimistic territory. At a weekly sentiment score of +16% overall, this marked the first net-positive news sentiment week of the past 5 weeks, which came as a bit of a surprise given the largely downbeat economic events (2nd straight quarter of GDP decline, 0.75pp Federal Reserve rate hikes). The underlying takeaway here seems to be that these negative effects had already been relatively expected and “priced in” to the market’s downward movement over the past few weeks, so analysts reacted somewhat optimistically when the dust settled. That said, should we expect optimism to persist? A few things to keep in mind this week:

Earnings season is in full swing, and expectations seem appropriate:

• Expectations around Q2 earnings have been markedly lower compared to previous quarters as folks prepare for the ill-effects of a slowing economy to set in on corporate balance sheets. Given this dampened anticipation, last week’s group of big tech earnings beats landed optimistically (see sentiment distribution above), with names like Microsoft and Google rallying in stock price despite posting weaker results than previous quarters.

• Overall, we’re now about halfway through earnings season, and despite the macroeconomic environment, full-year earnings estimates continue to remain resilient, calling for about 9% growth year over year.2 That said, earnings from last quarter don’t fully reflect the impacts of the Fed’s recent rate hikes, so we might expect forecasts to continue being revised lower, especially for 2023 figures. This week’s big slate of earnings shown here:

GDP suggests the US is in a recession, but not everyone’s convinced:

• Last week’s highly anticipated release of Q2 GDP data revealed a second-straight quarter of economic shrinkage in the US, which qualifies as an officially recession based on the technical definition. However, the NBER, Fed Chair Jerome Powell, and President Biden have all claimed that this GDP decline does not signify a recession in their books just yet (though everyone agrees that economy is clearly slowing to below-trend growth levels), citing the strength of the US job market and relatively resilient corporate earnings as reasons to believe a recession may still be curtailed.

• To me, it seems that these folks are mainly trying to keep expectations positive until they absolutely have to admit a recession is here — even though many of the signs point to us already being in a bonafide recessionary period. Keep in mind, all three of the 1970’s recessions started with positive payroll growth like we’re seeing (below), and as we stated above, the majority of corporate earnings aren’t yet reflecting the adverse rate environments that are expected ahead. For more clues, we’ll look to the upcoming government employment report for the month of July, scheduled to be released on Friday.

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.