Our May 2023 stock and ETF watchlist with entry points, sector analysis, and market outlook.
Market Overview
Welcome back to The Wealth Catchers' watchlist. For the month of April all the indices were up except for the Russell 2000. The most recent job numbers show that the US economy added 236,000 jobs in March, and the unemployment rate decreased to 3.5%.
Fed & Monetary Policy
Even if this is wonderful news for the labor market, the Federal Reserve is having trouble handling it because it has been aggressively raising interest rates to curb inflation and balance the economy. Despite these initiatives, the data has yet to reflect the Fed's intentions, which has many economists uncertain about the future. Many analysts predict that the Fed will likely raise rates by another 0.25% next month, which could mark the end of rate hikes for the Fed. Despite the increase in jobs, some people are worried about the Fed's inability to stay up with the economy. Investor caution is increasing as a result of rising interest rates, and apprehension about the future is intensifying. It will be interesting to see how the Fed responds and how the market responds to these developments as the US economy continues to change. Investors and experts will be attentively examining economic statistics in the interim to look for any indicators of what is to come. Apple and other IT firms are under pressure as the US economy continues to deal with fears of a recession. Recent sources claim that Apple saw a 40% decline in PC shipments, which is affecting other significant tech firms including Lenovo, HP, and Dell. As the next earnings cycle approaches, this uncertainty is worrying the IT sector. Even though some stocks are increasing in value as a result of cost-cutting initiatives at businesses like Meta, the industry is still dealing with macroeconomic issues and the effects of Federal Reserve rate hikes. Analysts are keeping a careful eye on how much money tech businesses have saved from the recent waves of layoffs. Meanwhile, Apple has teamed up with Goldman Sachs to launch a savings account that offers a competitive 4.15% annual percentage yield (APY). According to Apple, the savings rate is more than ten times higher than the US average. Customers may have more options for where to invest their money thanks to Apple's well-known brand and large customer base, which might put pressure on large banks that provide low rates. In India, Apple launches its first physical location. The move is a part of Apple's aim to increase its footprint in the nation, which has a sizable population of educated English-speakers and wants to grow its own manufacturing industry. CEO Tim Cook has stated his optimism for India, which Apple and other Big Tech companies are finding more and more appealing due to its size and the fact that it is not China. In order for India to grow become a key market for Big Tech, however, infrastructure issues must be resolved. Due to recent market volatility and possible concerns like loan defaults, this series of earnings announcements may be more market-moving than usual. Banks' first-quarter profits will be heavily scrutinized for clues about their response to these difficulties. Lenders are less likely to have to liquidate assets to cover a sudden spike in withdrawals thanks to the Federal Reserve's decision to permit banks to borrow against collateral at par, though they may have new strategies in place if there are any additional signs of a run. One of the biggest banks in the US, First Republic Bank, has lately made headlines after reporting a 41% decline in deposits. Customers made "unprecedented" levels of withdrawals during the March banking crisis, which resulted in the failure of two US lenders. The bank intends to reduce executive pay and 2025% of its workforce as a result. First Republic Bank is in danger of failing and might require government help. Despite capital infusions and regulatory help, the destiny of the bank is still in doubt as its shares have fallen by 88% since March 1st. Promises to eliminate positions, reduce its balance sheet, and increase deposits haven't worked so far. The revelation of First Republic Bank's financial difficulties serves as a harsh reminder of the difficulties that banks and other financial institutions face in the quick-paced and unpredictably changing economic climate of today. Smaller banks might find it difficult to survive, whereas larger banks might have the means and adaptability for enduring storms of this kind.
Macro Concerns
The prospect of a recession by year's end is once again being discussed as the year goes on. A considerable slowdown in global growth has been forecast by the International Monetary Fund (IMF), which is worrying many investors. The IMF's prediction serves as a reminder that the world economy is still in distress. Even if the US economy has been doing well, other nations have not fared as well. A severe downturn in one region of the world could have an impact on the US economy because of how intertwined the world's economies are. However, investors are still purchasing respectable companies at reasonable prices, and the IMF's most recent forecasts are still significantly better than they were in October. The possibility of a recession is not strong enough to make traders press the sell button. Now, the market's surge has been significantly influenced by the most recent mania for generative AI and AI language models. It's as if you can't open any social media app without seeing something about AI. The level of overcrowding in the tech industry at the moment, suggests that the risk of a recession is not yet fully factored in. Several tech giants, including Google parent Alphabet, Facebook, Apple, Amazon, and Microsoft, have contributed to the current market rally. These businesses are leaders in the development of AI technology, and investors have flocked to acquire their stock as a result of their success, causing intense competition in the IT industry. Predictive analytics, image identification, and natural language processing are just a few of the disciplines where this technology has been employed to create cutting-edge applications. Investor interest in the potential for these applications to upend established industries and launch new ones has sparked a rise in interest in tech equities.
Monthly Performance
At the close of month the Dow Jones (2.48%), S&P 500 (1.46%) and NASDAQ (0.04%) showed some positivity, while the Russell 2000 (-1.86%) dragged. At the close of the month of April the VIX was at 15.78. At the close of the month the "Fear and Greed" index was at 60 indicating greed in the market.
Index Performance
| Index | Performance |
|---|---|
| Dow Jones (Apr 2023) | +2.48% |
| S&P 500 (Apr 2023) | +1.46% |
| NASDAQ (Apr 2023) | +0.04% |
| Russell 2000 (Apr 2023) | -1.86% |
| VIX | 15.78 |
Top Sectors
Bottom Sectors
Stock Entry Points
| Ticker | Daily Entry | Weekly Entry |
|---|---|---|
| NKE | $112–$121 | $94–$120 |
| ABNB | $107–$111 | $87–$121 |
| MSFT | $257–$273 | $214–$233 |
| AAPL | $149 | $128–$138 |
| Z | $38–$42 | $30–$38 |
| GOOGL | $87–$97 | $87–$99 |
| PYPL | $73–$81 | $69–$82 |
| MCD | $261–$269 | $231–$255 |
| WMT | $138–$142 | $127–$135 |
| TSLA | $154–$178 | $111–$146 |
| SBUX | $84–$104 | $72–$93 |
| V | $204–$212 | $175–$207 |
| PG | $137–$143 | $122–$137 |
| WM | $149–$158 | $139–$152 |
| CHPT | $10–$12 | $8–$11 |
| IIPR | $69–$73 | $57–$99 |
| SHOP | $39–$42 | $31–$41 |
| ADBE | $325–$353 | $288–$321 |
| AMZN | $88–$97 | $82–$102 |
| CRWD | $111–$128 | $95–$121 |
| NVDA | $209–$217 | $129–$182 |
| COST | $475–$488 | $450 |
ETF Entry Points
| Ticker | Daily Entry | Weekly Entry |
|---|---|---|
| ARKK | $37 | $34–$40 |
| VUG | $233–$240 | $214–$234 |
| VGT | $354–$369 | $308–$332 |
| VOO | $353–$364 | $335–$364 |
| SMH | $215–$224 | $175–$224 |
Key Takeaways
- →April 2023: Banking fears receded; Real Estate and Financials led recovery.
- →Roster changes: GOOGL replaces SQ; PYPL and CHPT in final months.
- →NVDA RSI crossed 70 after meteoric rise — expect cooling/consolidation.
- →MCD +26.59% since being added to the watchlist in 2021.
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