Last week’s postI asked if investor optimism was out of place in the face of rising bond yields, pointing out that despite the equity risk, all three major averages have recently posted weekly gains. This week’s reversal in all three averages appears to be clearing up investors’ risk tolerance, at least in the short term. So how long will the decline take?
Under pressure from declines in the financial sector, stocks mostly ended lower on Friday. Bank stocks, in particular, fell out of favor on comments from the Federal Reserve that a temporary capital requirement exemption for banks would not be extended. This sent stocks like JPMorgan Chase (JPM) and Bank of America (BAC) with a decrease of 1.6% and 1% respectively. They inevitably contributed to the 0.71% decline in the Dow Jones Industrial Average, which fell 234.33 points and ended Friday’s session at 32,627.97.
Declines at Apple (AAPL), IBM (IBM) and Microsoft (MSFT) also put pressure on the Dow. The S&P 500 index lost 2.36 points, or 0.06%, on Friday, ending the session at 3,913.10. The Nasdaq reversed declines earlier in the session, closing 99.07 points, or 0.76%, to end at 13,215.25. The tech-heavy index was driven by gains on Facebook (FB) (plus 4%) and peloton (PTON) (plus 5.4%) and CrowdStrike (CRWD) and Zoom Video (ZM), which rebounded from sharp declines on Thursday when the Nasdaq lost 3% as bond yields rose.
As noted, all three indexes were down for the week, with the Dow down 0.5% and the S&P 500 and Nasdaq each dropping 0.8%. Bond yields continue to determine the direction of stocks. The 10-year Treasury note yield rose to 1.725% on Thursday, hitting a 14-month high. While this continues to be a headwind for stocks, investors were encouraged by comments from Fed chairman Jerome Powell, who assured the market on Friday that the central bank would support the US economy “for as long as possible.”
The Fed’s encouraging stance appears to be helping the market, at least in the short term, to allay some concerns about rising bond yields. Other reasons to be optimistic: First quarter results are just around the corner and advances in vaccines and distribution are accelerating, not to mention the fact that economists are forecasting robust growth of 6% for the US economy in 2021. In other words, stocks have a lot of catalysts ahead of them. That is, if bond yields can stabilize. For the time being it will be an exhibition match.
In the meantime, here are this week’s stocks to keep an eye on.
Adobe (ADBE) – Reports after close of trading Tuesday, March 23
Wall Street expects Adobe to make $ 2.78 per share on sales of $ 3.76 billion. This compares to the same quarter last year when earnings were $ 2.27 per share on revenue of $ 3.09 billion.
What You Should See: Adobe is expected to report a monster quarter that shows an increase in activity and work from home, according to several Wall Street analysts who have cited partner exams. The digital cloud giant has successfully transformed its business from selling desktop software to cloud-based subscription services that ensure sustainable and predictable revenue. In addition, Adobe’s profit margins rose steadily during this transition as the subscription business – for both the Digital Media and Digital Experience segments – eliminated not only the local installation of software by the customer, but also regular software upgrades. Additionally, the stock is way more attractive (down 12% year-to-date) than it was when I last discussed it. Now would be a great opportunity to expand on an existing position and not only bet on a top and bottom line beat, but also on an upward lead.
GameStop (GME) – Reports after close of trading Tuesday, March 23
Wall Street expects GameStop to make $ 1.35 per share on sales of $ 2.21 billion. This compares to the same quarter last year when earnings were $ 1.27 per share on revenue of $ 2.19 billion.
What to Note: Stocks are down 27% this week, which is a three-week profit streak with stocks up around 500% since mid-February. Still, stocks, which have soared 970% since the start of the year, are up 400% in 30 days. Beyond the rally sparked by Reddit, some investors are optimistic about the fundamental story unfolding, including excitement over Microsoft’s new game cycle (MSFT) Xbox and Sony (SNE) Playstation. Early reports suggest that demand for consoles is outpacing supply. There’s also buzz about the arrival of Ryan Cohen, Chewy (ALL) Founder tasked with turning GameStop into an e-commerce force. However, this is easier said than done as the brick and mortar retailer has not yet achieved any financial success in the digital arena. In other words, the post-earnings call is being watched closely for comments on expectations for the quarters ahead.
I am fine (AMWL) – Reports after close of trading on Wednesday March 24th
Wall Street estimates Amwell will lose 26 cents a share on sales of $ 54 million. That’s a quarter-on-quarter loss of 26 cents per share on revenue of $ 62.55 million.
What to Remember: In addition to providing a robust telemedicine platform, Amwell has an aggressive goal of becoming a network access provider rather than a clinical provider. The company describes itself as a platform that enables insurers, providers and innovators to provide better access to more affordable, higher quality healthcare. Without question, healthcare was a strong sector to invest in, especially during the increased number of Covid cases at the height of the pandemic. But can Amwell make healthy returns in the Teleheath sector? This is the main question investors try to evaluate, especially in a market dominated by companies like Teledoc (TDOC) and more recently Amazon (AMZN). Amwell’s main business is the platform subscriptions segment, which grew only 17% in the last quarter. On Wednesday, the market will want to see a more robust number before stocks send higher.
The views and opinions expressed are those of the author and do not necessarily reflect those of Nasdaq, Inc.