Slow start to retail earnings week
Stocks finished last week on a roll with strong back-to-back performance after a sharp inflation-induced drop, but the weekend really cooled things off and left the major indices with slight losses in a trading session. Monday groggy.
Meanwhile, the earnings season is drawing to a close, with some of the nation’s largest retailers due to release a report in the coming days. It was a truly fantastic season where over 80% of companies beat profit estimates… even though the market rarely rewarded them for the effort.
On Monday, stocks were sluggish and technology was under pressure again. The NASDAQ slipped 0.38% (or about 50 points) to 13,379.05. The index fell 2.4% last week, but that was after climbing about 3% on Thursday and Friday combined.
The S&P slipped 0.25% to 4,163.29, while the Dow was down 0.16% (or about 54 points) to 34,327.79. These indices were down 1.4% and 1.1% respectively last week.
We’re coming back from a very volatile week, which saw inflationary concerns push everything down for the first three days (especially technology). The last two sessions saved some against the market, although it was still solidly in the red over the five days.
Despite the rebound in oversold levels at the end of last week, the market is still uncomfortable with the recent CPI report. Consumer prices jumped 4.2% in April year over year, topping expectations by about 3.5%. This is something this finicky market is not going to get over quickly, especially since this issue has been its main concern with the pandemic now on its last legs.
But this week will not be all about inflation. The earning season still has its work cut out for it, especially when it comes to retailers. Tomorrow will be one of those busy days with giants like Walmart (WMT) and Home Depot (HD) going on the plate before the bell. The Macy’s (M) department store staple is also slated for release tomorrow before opening.
For more on this retail week, check out Title trader New article from publisher Dan Laboe titled: “What to expect from retail earnings week”.
Highlights of today’s portfolio:
Surprise trader: For the second session in a row, department store giant Dillard’s (DDS) was easily the top performer of all the ZU names. It jumped 12.8% on Monday after posting strong quarterly results last week that included a positive surprise of over 400%. So you can see why Dave stayed in the same industry today by adding Kohl’s (KSS). This Zacks Rank # 1 (Strong Buy) has over 155% positive ESP profit for the coming quarter ahead of the bell this Thursday, May 20. The publisher added KSS today with a 12.5% allocation, while also selling Tractor Supply (TSCO) for 3.1% in one month to free up space for the remainder of the season. Read the full commentary to learn more about today’s action. By the way, DDS is now the best performer in the last 30 days with a gain of 34.9%.
Technological innovators: For several months, Alpha and Omega Semi (AOSL) has tended to decline. However, Brian believes this stock is about to rebound, especially if the token shortage is about to end (as he expects). AOSL is a Zacks Rank # 1 (Strong Buy) who beat the Zacks consensus estimate in each of the past four quarters with an average surprise of 33% during that time. Looking ahead, earnings estimates have risen across the board, with analysts calling for 200% + growth for this year. Despite this growth, valuation still looks attractive and margins have been rising for three quarters. Brian added AOSL on Monday ahead of the next move higher, while also selling Upwork (UPWK) after he slipped to Zacks # 5 (strong sell). See the full commentary for more on today’s action.
Blockchain innovators: It is not necessary to explain what Coinbase (COIN) has to do with blockchain technology. This pure-play is the largest cryptocurrency exchange in the country, trading around 50 different digital assets. Dave wanted to add COIN since its IPO and now has a fantastic opportunity after the recent sale. The stock is currently trading below its IPO price, meaning it has a lot of leeway to run higher. “As bitcoin and other currencies tumble, it looks a bit like a move against the grain … which I’m all in favor of,” the publisher said. Learn more in the full essay.
TAZR trader: Throughout this “software and Bitcoin bludgeoning slide,” Square (SQ) is holding on to around $ 200. Kevin has been a fan of this innovative payment processor for some time now and considers the stock to be steal at this price. Therefore, he added again to SQ on Monday. The portfolio initially repurchased this position in November and has added to it twice since. Now it’s three times! Read the full commentary to learn more about the five reasons the publisher made the move.
Black Box Merchant: This week’s adjustment traded four stocks. Names sold today included:
• CNH Industrial (CNHI, + 2.7%)
• CommScope (COMM, + 0.7%)
• Bloomin Brands (BLMN)
• Fluorine (FLR)
The new purchases that filled these places were:
• Sally Beauty (SBH)
• Timken Steel (TMST)
• American steel (X)
• US Foods (USFD)
Read it Black Box Merchant’s Guide to learn more about this IT department.
Main trader: “Markets are readjusting to accommodate the new normal and stock selection has never been more important in this highly uncertain environment. Nonetheless, you must give the market time to resolve macroeconomic issues such as Fiscal uncertainties and the Federal Reserve’s situation It looks like 2021 will be the year big tech will underperform the S&P 500.
“It feels like we are living in a gold market where stocks are neither too hot nor too cold, but fair. This is the root cause of the post-profit market consolidation that we are seeing.” – Dan Laboe
Have a good evening,
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