A robust start to earnings season combined with a reassuring series of economic data sparked three straight days of gains for the market, leaving each of the major indices with weekly advances of more than 1.5%.
Investors are breathing a sigh of relief that soaring inflation and the global supply chain issues don’t seem to be curtailing the economic recovery as much as feared.
As a result, the NASDAQ climbed 2.2% over these five days, while the S&P rose 1.8% and the Dow advanced 1.6%. That makes two consecutive weeks in the green to begin October.
The big banks have been killing it to kick off earnings season, which continued today with an epic report from Goldman Sachs (GS) that included a positive surprise of more than 52%. The stock was up 3.8% today.
This performance continues similarly strong results over the past few days from the likes of JPMorgan (JPM), Bank of America (BAC), Wells Fargo (WFC), Citigroup (C) and Morgan Stanley (MS).
“With respect to bank earnings, not only have the reported numbers turned out to be stronger than expected, but managements have provided reassuring comments about trends in core banking activities that have been muted in recent quarters,” said Director of Research Sheraz Mian in his new article titled “Into the Heart of Q3 Earnings Season”.
Meanwhile, economic data has also helped the market’s mood, including today’s retail sales number. The print came to an increase of 0.7% for September when expectations were for a 0.2% loss.
We already received a CPI report that was only slightly hotter than expected and a PPI report that was actually a little bit better than forecasted. These inflation indicators and the retail sales suggest that consumers are weathering rising prices for now.
And the jobless claims number yesterday marked a new pandemic-era low, as the 293K result was the first print below 300K since our Covid problems began.
All this momentum led to the Dow gaining 1.09% (or about 382 points) on Friday to 35,294.76, while the S&P improved 0.75% to 4471.37. The NASDAQ advanced 0.50% (or nearly 74 points) to 14,897.34. The results followed a rally of more than 1.5% for each of the indices on Thursday.
But let’s not get ahead of ourselves. Earnings season is just beginning, and those inflation and supply chain issues are still a problem. As Sheraz says in his article, we’ll learn more as the reports broaden next week:
“(Next) week’s lineup of results will give us fresh insights on the most important issue weighing on the earnings picture at present, namely inflationary trends and developments on the logistics/supply-chain front. The banks aren’t as directly exposed to these issues as P&G (PG) and Tesla (TSLA) are.”
We’ll be getting nearly 400 reports next week… and then the season will really heat up! So rest up over the weekend because we’ve got a lot more earnings yet to come…
Today's Portfolio Highlights:
Blockchain Innovators: One of the biggest crazes in blockchain technology right now is non-fungible tokens (or NFTs), which is a unit of data stored on a digital ledger. A major proponent of this technology is Funko (FNKO), the pop culture consumer products company that sells toys and collectibles. In fact, FNKO has a majority stake in a mobile app for tracking NFTs called TokenWave. So you can see why Dave is interested in this name. It also helps that FNKO is a Zacks Rank #1 (Strong Buy) that’s expected to grow EPS by 216% this year with revenue growth of 42%. The editor added FNKO on Friday, while also “giving up” on eGain (EGAN) after dropping to a Zacks Rank #4 (Sell). Learn all about today’s action in the full write-up. By the way, this service had a couple top performers today with Coinbase Global (COIN, +7.9%) and A10 Networks (ATEN, +4.9%).
Technology Innovators: It’s been pretty hot in the market over the past few days, which is giving Brian a chance to load up the portfolio. On Friday, he added I3 Verticals (IIIV), an Internet software name that offers electronic payment services to several industries. This Zacks Rank #2 (Buy) eclipsed the Zacks Consensus Estimate twice and matched once in the past four quarters. Most importantly though, IIIV has an attractive valuation for a name with 96% topline growth in the most recent quarter and expectations of 46% growth this year. The editor expects the stock to return to recent highs shortly. This addition makes 13 names in the portfolio. Don’t be surprised if Brian gets the service up to a full complement of 15 names next week. Read the full write-up for a lot more on IIIV.
Surprise Trader: The final addition to this portfolio in the first week of earnings season is Olin (OLN), a chemicals company that reports after the bell on Thursday, October 21. Dave thinks it’s set for a third consecutive beat given its Earnings ESP of 7.45%. He added OLN on Friday with a 12.5% allocation and decided not to remove anything. Read the complete commentary for more.
TAZR Trader: If there’s one thing this pandemic taught us, it’s that companies need a robust e-commerce presence. Pinterest (PINS) certainly sees the importance, which is why this unique social media platform is transitioning into a full-fledged e-commerce site that attracts corporate advertising. And PINS is in the early stages of this move, which leaves tons of potential for investors. That’s why Kevin started a position in this stock on Friday. EPS grew by an impressive 160% this year, and it’s forecasted to advance another 33% next year. It’s also a great value in the usually expensive software/social space. Make sure to read the editor’s complete analysis of PINS in the full commentary, which includes a look at his Bull of the Day article from August and a useful news story from earlier this month.
Black Box Trader: Let's not forget that Alcoa (AA) used to be considered the unofficial start of earnings season. So while all the big banks now capture most of the early attention, it's nice to see good old AA put together a quarterly performance like it did yesterday. The aluminum giant reported earnings that beat the Zacks Consensus Estimate by nearly 11%, while revenues advanced 10% on higher prices for aluminum and alumina. The company also announced a quarterly dividend and a new share repurchase plan. Shares of AA soared over 15% on Friday, which gave this portfolio the best performer among all ZU names. By the way, Century Aluminum Company (CENX) also made the list with a rise of nearly 7.1% in the session. Read the Black Box Trader’s Guide to learn more about this computer-driven service.
Have a Great Weekend!
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