Slow Start to Busy Week of Inflation Data and Earnings
Slow Start to Busy Week of Inflation Data and Earnings
SPECIAL ALERT: The latest episode of the Zacks Ultimate Strategy Session will be available for viewing no later than this Wednesday, October 13. Kevin Matras, Jeremy Mullin and Sheraz Mian will cover the investment landscape from several angles in this informative event.
Don’t miss your chance to hear:
▪ Sheraz and Jeremy Agree to Disagree on whether the market top is in or there is more to go
▪ Kevin Matras answers your questions in Zacks Mailbag
▪ Sheraz and Jeremy choose one portfolio to give feedback for improvement
▪ And much more
So be sure to mark your calendar then log on to Zacks.com and bookmark this page.
You can understand why the market would be a little nervous to begin this eventful week, which includes the release of a couple important inflation indicators and the start of a new earnings season.
Stocks were solidly higher earlier in the session, but took a turn for the worse in the second half. As a result, the Dow went from a more than 200-point gain to a 250-point loss, as it dipped 0.72% to 34,496.06. Furthermore, the S&P was off 0.69% to 4361.19, while the NASDAQ declined 0.64% (or about 93 points) to 14,486.20.
The major indices are returning from a positive weekly performance that saw the Dow and S&P rise by 1.2% and 0.8%, respectively. The NASDAQ managed an increase of nearly 13 points. Stocks muscled through a sharp selloff on Monday and a very disappointing employment report on Friday, which saw only 194K jobs added when approximately 500K were expected.
The next big report that investors will be watching with rapt attention is the CPI on Wednesday, followed by the PPI on Thursday. Of course, inflation is one of the market’s big concerns right now as stable prices are part of the Fed’s dual mandate. The last several reports have been very high, though the August print did show some slight improvement over the previous month.
“Economists are projecting the headline inflation measure to come in 0.3% above August's CPI. Core inflation (excluding volatile pricing categories like energy and food) is anticipated to exhibit the same 0.3% month-over-month increase,” said Dan Laboe in Headline Trader.
“Market participants will be laser-focused on this number as it will signal whether the Federal Reserve and their steadfast "transitory" posturing on inflation can be trusted (significant interest rate implications).”
Wednesday might also be considered the first day of earnings season (unofficially of course). We’ll be getting reports from major banks like JPMorgan (JPM) and Goldman Sachs (GS) with a lot more expected in the following two days. In fact, more than 40% of the S&P’s financial sector will have reported by the end of the week, according to Dan.
Today's Portfolio Highlights:
Surprise Trader: Earnings season is back! Things don’t really heat up until later this week with the big banks, but Dave is already buying. He started the week by adding Covenant Logistics (CVLG), which is part of the highly-ranked Transportation – Truck space (top 11%). This Zacks Rank #2 (Buy) has beaten the Zacks Consensus Estimate for 14 straight quarters now with the most recent surprise reaching 50%. Looking forward, the company has a positive Earnings ESP heading into its next quarterly report on Wednesday, October 20 after the bell. The editor added CVLG on Monday with a 12.5% allocation, while also selling Darden (DRI) for a slight gain of 1.7% in less than a month. The full write-up has more on today’s action.
Stocks Under $10: The best performer among all ZU services on Monday was easily Flexion Therapeutics (FLXN), which soared more than 58% on news that it is being acquired by Pacira BioSciences (PCRX). FLXN is a specialty pharmaceutical company that develops and sells pain therapies. Brian bought it back on August 31. Under normal circumstances, the editor would sell a company that soared past 50% on a Monday morning. However, he considers the deal to be “really interesting” because there are so many earnouts for the shareholders. In other words, Brian sees the potential for even more profit from this name, so he’s hanging onto it for now. Read the full write-up for a summary on the earnouts.
Technology Innovators: Last week’s chip stock purge (in which four stocks were sold) left this portfolio with several open spots. Brian filled one of them on Monday with Belden (BDC), a wire & cable products company that is benefitting from the strong telecom space at the moment. Rising earnings estimates make the stock a Zacks Rank #1 (Strong Buy), while it has beaten the Zacks Consensus Estimate in each of the last four quarters with an average surprise of 27%. The editor sees a good valuation, including a forward PE of 13x for a stock with topline growth of 41% last quarter. Learn a lot more about this new addition in the complete commentary.
Counterstrike: The service added a couple names on Monday that prospered during the worst of the pandemic, but have since pulled back. Jeremy thinks they’re set to be bounce plays. Firstly, Zoom Video (ZM) was “left for dead” as growth for this communications platform slowed when restrictions were eased. However, the negativity looks to be priced in now, as earnings estimates are on the rise for the current year. The other buy was payment processing innovator Square (SQ), which is still a Zacks Rank #1 (Strong Buy) even though shares are down 20% from recent highs. Exposure to Bitcoin is a big plus for this stock as the cryptocurrency moves to all-time highs. The editor added ZM today with a 4% allocation with hopes for a bounce above $300 ahead of its late November earnings report. SQ was added with an 8% allocation to capture an expected runup before its early November release. Read the full write-up for a lot more on these moves.
Headline Trader: This service had a top performer on Monday as well with SoFi Technologies (SOFI) climbing nearly 13.5%. Here's how editor Dan Laboe put it in today's commentary: "SoFi (SOFI) took flight in today's session following Morgan Stanley's (MS) initiation of coverage on this underappreciated stock. MS gave it an overweight rating with a price target of $25 a share (in line with the target I had set when on my original purchase date), representing an over 50% from where it closed the session on Friday." SOFI is now the second best performer in the portfolio with a gain of nearly 14.6% since being added less than two weeks ago.
Black Box Trader: The portfolio replaced six names in this week's adjustment. The stocks that were sold on Monday included:
• Jefferies Financial Group (JEF, +5.7%)
• New York Community Bancorp (NYCB, +1.8%)
• Avantor (AVTR, +1%)
• Capital One Financial (COF)
• Pfizer (PFE)
• Range Resources (RRC)
The new buys that filled these spots were:
• Archer-Daniels-Midland (ADM)
• Century Aluminum (CENX)
• Cleveland-Cliffs (CLF)
• DICK'S Sporting Goods (DKS)
• Huntsman (HUN)
• Olin Corp. (OLN)
Read the Black Box Trader’s Guide to learn more about this computer-driven service.
Have a Good Evening,
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