It is not a new mantra, but “no fight against the Fed” is the apparently currently adopted topic on the stock market. That is, until inflation or rising bond yields become a problem that triggers a market sell-off. I continue to believe that the best way to counter inflation is to stay invested in the market, especially given the pent-up demand for products and services as the economy continues to reopen.
In other words, given the Fed’s temporary inflationary message, there are still many reasons to maintain confidence in the market. And investors seem to be taking on that mindset, as despite the sharp rise in the consumer price index in May, all three major averages ended in positive territory on Friday, suggesting that reflation trading is now on hold. On Friday, the S&P 500 Index posted its second record high in a row, rising 8.26 points, or 0.2%, to close at 4,247.44.
The Dow Jones Industrial Average gained 13.36 points, or 0.04%, to close at 34,479.60. While the blue chip index was barely higher today, a positive closing price was still a welcome sign as the index fell to nearly 1% for the week in three out of five trading sessions. This week wins at Microsoft (MSFT), Foreclosure (CRM) and IBM (IBM) helped the Dow rebound from potentially steeper falls for the week. Meanwhile, the Nasdaq Composite Index was the biggest winner, up nearly 2% for the week, rising 49.09 points to 14,069.42 on Friday.
The tech-heavy index extended its winning streak to four weeks, driven by a strong rebound in work-from-home stocks like Zoom Video (ZM), CrowdStrike (CRWD) and DocuSign (DOCUMENTARY), among other strong winners. Not surprisingly, however, is the reason behind the recent surge in tech stocks. Notably, the 10-year government bond yield, trading flat at 1.46% on Friday, fell 3 basis points to 1.43 during the session, the lowest level since April. In addition, the 10-year rate fell almost 12 basis this week, marking the largest weekly decline in almost twelve months.
The fact that the 10-year price is now below 1.5% is a strong bullish sign for stocks, especially high-growth stocks like technology. As I mentioned in previous posts, the market seems tempted to move higher after the recent volatility we’ve seen in technology stocks and the slight pull-back over the past three months. Factoring improvement Employment data, which cut the unemployment rate from 6.1% to 5.8% last week, is also an encouraging sign for stocks.
As I have said for some time, all of these factors taken together support what I believe to be encouraging signs that the economic recovery is now well under way. And with all three major benchmarks back at or near their 50-day moving averages, staying invested in the market is even more appealing, especially for investors who can handle the daily fluctuations like the backlog of reopenings as the economy accelerates.
It’s been an easy week in terms of earnings, but here are the stocks I’ll be watching this week.
Oracle (ORCL) – Reports after close of trading on Tuesday, June 15
Wall Street expects Oracle to make $ 1.31 per share on revenue of $ 11.04 billion. Compared to the same quarter last year, earnings per share were $ 1.20 on sales of $ 10.44 billion.
What To Watch Out For: Oracle stock is up 37% in the past six months, not only has it more than doubled the S&P 500 index’s 16% gain, but its performance has surpassed the rise in the Technology Select Sector SPDR ETF far exceeded by 14.7% (XLK). With a year-to-date increase of 28% and trading near 52-week highs, the database giant has to prove its fundamentals can sustain its recent growth rate, especially given the stock trades at a premium to its historical valuation. The company is nonetheless seen as a transformation game based on its business transformation towards a cloud subscription-based model in the style of Microsoft (MSFT) a decade ago. As such, the company’s cloud strategy, which is heavily geared towards customer loyalty and the migration of existing local customers to the cloud, remains a key factor in evaluating the stock’s rewards potential. In other words, Oracle can work effectively with established vendors like Salesforce (CRM), Working day (WDAY) and Amazon (AMZN) and gain a larger share of the cloud market?
Adobe (ADBE) – Reports after close of trading Thursday June 17 Jun
Wall Street expects Adobe to make $ 2.81 per share on revenue of $ 3.73 billion. Compared to the same quarter last year, earnings per share were $ 2.45 on sales of $ 3.16 billion.
What to watch out for: According to several Wall Street analysts, Adobe is expected to report a monster quarter that is leading sustainable growth not only due to the tailwind from home working, but also due to the digitization trend that has been labeled as secular. The company’s product range is also clearly distinguished from potential competitors. Gregg Moskowitz, an analyst at Mizuho, recently launched coverage of the digital cloud giant with a buy rating and a price target of $ 600. “The company’s expansive portfolio of software solutions has made the company the gold standard for content creation, use and collaboration,” noted Moskowitz. Additionally, Adobe’s profit margins have steadily increased in both companies during its transition to a cloud-based subscription business.Although its stock isn’t cheap today, it doesn’t look like it will get cheaper given the company’s many growth catalysts.
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.
