T.Thanks to the strong earnings results of several blue chip companies, the stock market continues to rise to record levels. Persistently solid economic data has served as a catalyst to drive investors into risk assets, especially in this low interest rate environment. But how much higher can stocks go, especially when valuations are seemingly stretched across multiple sectors? This answer becomes a little clearer.
On Friday, the Dow Jones Industrial Average rose 164.58 points, or 0.5%, to close at 34,200.67. Strong performance in the Home Depot (HD), Cisco (CSCO) and Verizon (VZ) Compensate for weaknesses of technology giant Apple (AAPL), Foreclosure (CRM) and Intel (INTC). The S&P 500 index rose 15.05 points, or 0.36%, to end the session on a fresh closing high of 4,185.47 while the Nasdaq Composite rose 0.10% and added 13.58 points to at 14,052 To end 34. Like a week ago, the Nasdaq rose despite the weakness in stocks that have fueled the rally since March 2020.
Not only did all three major averages end the week more than 1% higher, both the Dow and S&P 500 posted gains for their fourth straight week. In order not to be outperformed, the Nasdaq has posted a return for three consecutive weeks. This is noteworthy given the ongoing concerns raised by rising bond yields in technology stocks, not to mention ongoing fears of a weakened global economic recovery. These gains underscore the appetite the market has not only developed for sustainable growth, but also reflect the optimism that exists in the coming profitable season. And there is a lot of data to support that expectation.
An example is Thursday’s retail data, which showed a 9.8% increase in March. Economists, who had expected a 6.1% increase, attribute the sharp increase to the additional incentives consumers have received. In other countries, fewer people also apply for unemployment insurance. In the week ending April 10, the Department of Labor reported 576,000 initial filings, the lowest since March 2020.
Essentially, there is a combination of fewer job seekers with increased consumer spending. It is difficult to argue against a positive economic recovery. The market welcomes this data, as evidenced by the S&P 500 index’s 11% year-to-date increase. It is also noteworthy that cyclical sectors, particularly the energy and financial sectors hardest hit by the pandemic, saw the largest share rally this year. Investors are betting that vaccine distribution and the reopening of the economy will further boost stock performance.
Will this assumption prevail? With stocks trading near all-time highs, there’s no mercy for companies making disappointing forecasts.
And on the topic of earnings, here are this week’s stocks that I’ll be watching.
IBM (IBM) – Reports after close of trading, Monday April 19
Wall Street expects IBM to make $ 1.63 per share on sales of $ 17.36 billion. Compared to the same quarter last year, earnings per share were $ 1.84 on revenue of $ 17.57 billion.
What to watch out for: When does IBM’s real turnaround begin? The company has been plagued by weak sales expansion and weak EPS growth for the past five to ten years. But the turnaround could be underway. The stock rose from about $ 115 in January to nearly $ 140. The stock is now near $ 132 and is facing major resistance. The market is understandably now taking a wait-and-see stance on Monday’s earnings results. The company’s cloud ambitions have promised to bring value to shareholders, but IBM has still not shown enough revenue to move a higher, despite its acquisition of Red Hat, which was believed to modernize the cloud business To support multiple. In addition, IBM has not benefited from the massive economic expansion brought about by cloud leaders like Amazon (AMZN) and Microsoft (MSFT) achieve double-digit sales growth. Does IBM still have some catching up to do? The market will want to hear progress in this effort on Monday.
United Airlines (UAL) – Reports after close of trading, Monday April 19
Wall Street predicts United Airlines will lose $ 6.98 per share on revenue of $ 3.27 billion. This compares to the same quarter last year when the loss was $ 2.57 per share on revenue of $ 7.98 billion.
What to Remember: With the falling booking demand caused by the pandemic, airline stocks have been one of the worst performing sectors over the past year. But that was before the vaccine distribution went into full swing. Not only did air travel end positively in 2020, advances in (and distribution) of vaccines have also changed investor sentiment that things can get back to “normal” much earlier than expected in 2021. But does this mean it’s time to put stocks on the airline? It is important there that you choose your seats. In the case of United Airlines, the company recently announced some of its first quarter results in advance. In addition to announcing plans to raise $ 5.5 billion through short-term bond issuance, it announced plans to open $ 5.75 billion in fixed-term and revolving-loan credit institutions. In other words, with debt rising, there are still economic aspects of the business that investors need to balance. While the company is arguably better positioned to weather the pandemic, it will need to significantly improve its cash burn rate to instill confidence.
Netflix (NFLX) – Reports after the end, Tuesday April 20th
Wall Street expects Netflix to make $ 2.97 per share on revenue of $ 7.13 billion. This compares to the same quarter last year when earnings were $ 1.57 per share on revenue of $ 5.77 billion.
What to See: Despite the advent of competing streamers like Disney + (DIS), HBO Max (T.) and Apple TV + (AAPL) Has Netflix found ways to maintain its status as the king of streaming. The company was ready to consistently reassess its market position and approach in order to remain competitive. A current example is a deal negotiated with Sony (SNE), which not only allows Netflix to get more content sooner than before, but also gives both companies the opportunity to enter into new partnerships. Netflix has also shown that it is poised to move from its current “all at once” model to the more TV-like schedule of “weekly” deliveries of popular shows. These innovative measures have enabled the company to record strong subscriber growth in international markets. But how long can Netflix defend its lawn? As is often the case, the way the company is doing for the next quarter and year will answer this important question.
Intel (INTC) – Reports after close of trading Thursday April 22
Wall Street expects Intel to make $ 1.14 per share on sales of $ 17.88 billion. This compares to the same quarter last year when earnings were $ 1.45 per share on revenue of $ 19.83 billion.
What to Remember: Intel stock has made an impressive rebound, up around 20% in six months. It has risen more than 30% since the start of the year, outperforming the S&P 500 index by 11%. That performance suggests that the market is poised to look beyond the company’s many self-inflicted wounds, which has resulted in Intel losing ground and market share to rival AMDAMD) and Nvidia (NVDA) in several important chip developments. The new CEO Pat Gelsinger has since done a solid job to change the negative portrayal of the company. But not all of Wall Street is sold. Last week, Raymond James downgraded Intel from Market Perform to Underperform, citing Intel’s over-reliance on PC demand. The company is also skeptical of Intel’s foundry ambitions, saying the project will consume a lot of money despite the support of the U.S. government. The company has to prove the opposite to the naysayers on Thursday, while at the same time selling the upside potential of the many growth initiatives described.
The views and opinions expressed are those of the author and do not necessarily reflect those of Nasdaq, Inc.