U.S. Equity Weekly Fundamental Forecast: The bull market is taking shape

US Equity Weekly Fundamental Forecast: Neutral

  • Seasonality studies going back 20 years show that August is generally positive, with the second half of the month producing the majority of gains during the month.
  • US stock markets may continue to trade higher in the near term, at least until the Federal Reserve’s Jackson Hole Economic Policy Symposium later this month.
  • The IG Customer Opinion Index suggests thatUS equities have a mixed short-term bias.

US stocks week in review

It was another strong week for U.S. equity markets as decelerating price pressures, according to the July U.S. Inflation Report, eased concerns over the Federal Reserve’s continued aggressive rate hikes. The US S&P 500 gained +3.24%, the technology-heavy US Nasdaq 100 gained +2.64% and the US small-cap focused Russell 2000 added an impressive +4.95%. The combined pullback in short-term US Treasury yields and volatility measures remains key to the rebound in US equity markets – which have officially entered bullish territory (>+20% from lows ).

Seasonality favors gains in US stock markets

The first two weeks of August saw gains for US stock markets, in line with historical trends. Seasonality studies going back 20 years show that August is a generally positive month, with the second half of the month producing the majority of gains during the month, according to data collected on EquityClock.com.

US S&P 500 Seasonality: DAILY TIMETABLE (20-year average) (CHART 1)

U.S. Equity Weekly Fundamental Forecast: The bull market is taking shape

Source: EquityClock.com

US Nasdaq 100 seasonality: DAILY TIMETABLE (20-year average) (CHART 2)

U.S. Equity Weekly Fundamental Forecast: The bull market is taking shape

Source: EquityClock.com

US Russell 2000 Seasonality: DAILY TIMETABLE (average over 20 years) (CHART 3)

U.S. Equity Weekly Fundamental Forecast: The bull market is taking shape

Source: EquityClock.com

With US real GDP tracking at +2.5% annualized in 3Q’22 according to the Atlanta Fed’s GDPNow growth tracker, coupled with generally positive earnings (75% of S&P 500 companies reported positive surprise of EPS and 70% reported a positive earnings surprise, per FactSet), there is reason to believe that U.S. stock markets may continue to trade higher in the near term – at least until the symposium on Federal Reserve’s Jackson Hole economic policy later this month.

Economic calendar week ahead

The turn to mid-August promises a busy US economic calendar, if not in terms of the magnitude of major data releases, but in frequency of data and events. There are only two “high” releases in the next few days, but the schedule still calls for a steady stream of information Monday through Thursday.

– On Monday, August 15, the NAHB US Housing Market Index for August will be released 30 minutes after US cash markets open. Long-term TIC net flows from the United States in June will be reported at 20 GMT.

– On Tuesday, August 16, US building permits and housing starts will be released at 12:30 GMT. US industrial production figures for July are due at 13:15 GMT.

– On Wednesday, August 17, weekly data on US mortgage applications will be released at 11 GMT. The July US retail sales report will be released at 12:30 GMT. June US business inventories are due out at 14 GMT. The July FOMC minutes are due at 18 GMT. Fed Governor Bowman will deliver remarks at 1:30 p.m. GMT and 6:20 p.m. GMT.

– On Thursday, August 18, the US Weekly Unemployment Claim will be released at 12:30 GMT, as will the US Philadelphia Fed Manufacturing Index for August. July data on existing home sales in the United States and the Conference Board’s leading index for July in the United States are due at 14 GMT. Kansas City Fed President George will deliver a speech at 5:20 p.m. GMT.

US S&P 500 PRICE VERSUS NET COT NON-TRADE POSITIONING: DAILY TIMETABLE (August 2020 to August 2022) (CHART 4)

U.S. Equity Weekly Fundamental Forecast: The bull market is taking shape

Then a look positioning in the futures market. According to CFTC TOC data, for the week ended August 9, speculators increase their net short positions in US S&P 500 futures at 216,439 contracts, against 194,685 report-short vsoncontracts held the previous week. The positioning is the net shortest it has been in the past 52 weeks, and the net shortest since the third week of June 2020.

CUSTOMER SENTIMENT INDEX IG: US S&P 500 PRICE FORECAST (August 12, 2022) (CHART 5)

U.S. Equity Weekly Fundamental Forecast: The bull market is taking shape

US 500: Retail trader data shows 35.34% of traders are net long with a ratio of short to long traders of 1.83 to 1. The number of traders net long is 1.02% higher than yesterday and 3.28% lower than last week, while the number of net-short traders is 0.73% higher than yesterday and 10.66% higher than last week .

We generally take a contrarian view of crowd sentiment, and the fact that traders are net short suggests that US 500 prices may continue to rise.

Positioning is less net-short than yesterday but more net-short since last week. The combination of current sentiment and recent shifts gives us another mixed trading bias for the US 500.

— Written by Christopher Vecchio, CFA, Senior Strategist

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