Best Industrial Stocks To Buy In June

Key Insights

  • Analyst estimates for Caterpillar and Deere have moved higher in recent months despite worries about the health of the global economy. 
  • Meanwhile their stocks have declined together with the broader market. 
  • As a result, Caterpillar and Deere are trading at attractive valuation levels. 

S&P 500 has just moved to new lows, and the market is under broad pressure. Industrial stocks are not an exception and are moving lower together with the general market. However, earnings estimates for some industrial stocks have been moving higher in recent months while they remained under pressure, which can serve as a material upside catalyst when markets calm down.

Caterpillar

Analyst estimates for Caterpillar continue to move higher despite worries about the slowdown of the world economy. Currently, the company is expected to report earnings of $12.47 per share in 2022 and $14.5 per share in 2023, so the stock is trading at 14 forward P/E.

The key question is whether analyst estimates will remain at current levels at a time when markets are worried about the impact of the upcoming rate hikes from the Fed. In case analyst estimates stay near current levels, Caterpillar will have a good chance to gain upside momentum.

Deere

The situation is similar for Deere as analyst estimates have been improving in recent months. The company is expected to report earnings of $26.36 per share in the next year, so the stock is trading at 12 forward P/E.

Earnings estimates for both companies have been gaining ground as analysts believe that demand for their products will stay strong due to high prices for many commodities.

While Deere stock will likely remain under pressure in case the general market continues to fall at a robust pace, the stock could be among leaders during the rebound due to its attractive valuation.

To keep up with the latest earnings updates, visit our earnings calendar.

Best Industrial Stocks To Buy Now

Key Insights

  • Caterpillar and Deere retreated after testing yearly highs. 
  • The pullback was driven by general market sentiment and the recent weakness in commodity markets. 
  • Both stocks are trading at less than 15 forward P/E, which is reasonably cheap for the current market environment. 

Several industrial stocks have recently suffered a material pullback after testing yearly highs as traders decided to take some profits off the table amid general market weakness. This sell-off may provide speculative traders with an opportunity to buy these stocks at a discount.

Caterpillar

Caterpillar stock has recently made an attempt to get to the test of the $240 level but lost momentum and pulled back towards the $210 level.

Analysts expect that Caterpillar will report earnings of $12.15 per share in the current year and $14.48 per share in the next year, so the stock is trading at less than 15 forward P/E. It should be noted that earnings estimates have been mostly stable in recent weeks.

At this point, the markets are worried that rising interest rates will hurt the economy and put pressure on stocks. However, commodity markets should remain strong despite the recent pullback, so demand for Caterpillar products would likely remain strong as well, and the stock would have a good chance to get back to the recent highs.

Deere

Deere stock has also found itself under significant pressure in recent trading sessions. The company is expected to report earnings of $26.18 per share in the next year, so the stock is trading at roughly 14 forward P/E.

The recent stock price action is a reaction to general nervousness and the pullback in commodity markets. However, the company’s stock is trading at reasonable valuation levels, which could attract speculative traders who are willing to bet that the recent strong pullback was not justified.

For a look at all of today’s economic events, check out our economic calendar.

Why Caterpillar Stock Is Down By 6% Today

Caterpillar Stock Falls As Traders Focus On Rising Costs

Shares of Caterpillar gained strong downside momentum after the company released its quarterly report.

The company reported revenue of $13.8 billion and adjusted earnings of $2.69 per share, beating analyst estimates on both earnings and revenue.

While the headline numbers were strong, the market focused on cost headwinds which put pressure on margins.

The market is worried about the negative impact that higher inflation will have on stocks and businesses in 2022, so it’s not surprising to see that investors are sensitive to any indications of rising costs.

These worries have already put significant pressure on Caterpillar shares today as the stock is down by 6% and is currently trying to settle below the $200 level.

What’s Next For Caterpillar Stock?

The market demand for Caterpillar products remains strong, and the key question is whether strong sales would offset the negative impact of higher costs in 2022.

The market has been very nervous since the start of this year, and S&P 500 is down by about 10% from all-time high levels. In such environment, traders are sensitive to bad news.

In the near term, inflation expectations could have a significant impact on Caterpillar stock. The market is worried that costs will rise faster than Caterpillar could offset them with higher pricing, which will put more pressure on margins and, therefore, on the company’s financial results.

Currently, analysts expect that Caterpillar will report earnings of $12.39 per share in 2022, so the stock is trading at 16 forward P/E, which looks reasonable for the current market environment.

However, it remains to be seen whether speculative traders will rush to buy Caterpillar shares amid rising yields and inflation fears. In case Treasury yields continue to move higher and the market begins to price in more than 4 rate hikes in 2022, Caterpillar and other infrastructure stocks may find themselves under more pressure.

For a look at all of today’s economic events, check out our economic calendar.

Caterpillar Stock Plunges on Cautioning of Margin Pressure in Q1

Caterpillar shares fell over 5% on Friday after the heavy equipment manufacturer cautioned that higher labour and production expenses could negatively impact its operating margins in the ongoing quarter.

The Deerfield, Illinois-based company reported quarterly adjusted earnings of $2.69​​ per share, beating the Wall Street consensus estimates of $2.26 per share. Caterpillar said its revenue jumped more than 22% year-on-year to $13.80 billion from a year ago. That too beat the market expectations of $13.15 billion.

“The beat was driven by higher other income and lower taxes while pricing added ~5% to the top-line. Dealer inventories decreased by $100mn in the quarter. Outlook: 1Q22 revenues are expected to be up YoY though Caterpillar (CAT) does see margin headwinds. Backlog up $2.5bn QoQ,” noted Stephen Volkmann, equity analyst at Jefferies.

Caterpillar stock fell over 5% to $201.4 on Friday. The stock fell over 2% so far this year after surging about 14% in 2021.

Analyst Comments

“While 1Q22 margin commentary is likely reflected in consensus to some extent, we think 4Q21 margin misses across all three segments is likely to mitigate estimate momentum exiting the print. Top-line momentum (particularly within Construction) remained resilient,” noted Courtney Yakavonis, equity analyst at Morgan Stanley.

“While retail sales should remain positive, we see less supportive replacement dynamics limiting the magnitude of the construction equipment recovery – limiting cycle over cycle growth in CI. E&T growth will likely see cycle-over-cycle deterioration in O&G revenues as well, as relatively young asset bases and limited capex improvement at the Oil Services level weigh on demand. While incremental have remained more resilient in the near term, we see limited scope for outsized incremental margin performance as well – given that consensus continues to embed more resilient margins. We see a less compelling re-stock opportunity vs. other Machinery end markets (e.g. Ag) as well.”

Caterpillar Stock Price Forecast

Nine analysts who offered stock ratings for Caterpillar in the last three months forecast the average price in 12 months of $240.00 with a high forecast of $290.00 and a low forecast of $164.00.

The average price target represents an 18.49% change from the last price of $202.55. Of those nine analysts, six rated “Buy”, two rated “Hold” while one rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $164 with a high of $305 under a bull scenario and $94 under the worst-case scenario. The investment bank gave an “Underweight” rating on the heavy equipment manufacturer’s stock.

Several other analysts have also updated their stock outlook. Barclays raised the target price to $225 from $220. Citigroup lifted the price target to $230 from $225. Credit Suisse upped the target price to $275 from $240. UBS increased the target price to $250 from $235.

However, technical analysis suggests it is good to sell as 100-day Moving Average and 100-200-day MACD Oscillator signals a selling opportunity.

Check out FX Empire’s earnings calendar

Monstrous Earnings Ahead: IBM, Microsoft, Intel, Tesla, Apple, Visa in Focus, Along With The Fed

Investors will focus on Q4 earnings for stocks that are economically sensitive, which should show better profits than technology stocks. Increasing Treasury yields and risk aversion could also hit the stock market hard next week, making the big tech earnings that much more critical. In addition, investors will closely monitor the latest news on the rapidly spread Omicron coronavirus variant in order to see how it impacts earnings in 2022. The following is a list of earnings slated for release January 24-28, along with a few previews.

Earnings Calendar For The Week Of January 24

Monday (January 24)

IN THE SPOTLIGHT: IBM

The Armonk, New York-based technology company, International Business Machines, is expected to report its fourth-quarter earnings of $3.39 per share, which represents year-over-year growth of over 60% from $2.07 per share seen in the same period a year ago.

The world’s largest computer firm’s revenue would decline over 21% to $1.96 billion from $20.37 billion a year earlier. It is worth noting that the technology company has beaten earnings in most of the quarters in the last two years, at least.

International Business Machines (IBM) 4Q earnings will be focused on standalone model mechanics and whether Software revenue can re-accelerate while Consulting demand sustains. However, we believe the setup becomes more attractive in 2H21. We update our estimates to reflect IBM standalone post-KD spin,” noted Katy Huberty, equity analyst at Morgan Stanley.

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE JANUARY 24

TICKER COMPANY EPS FORECAST
BRO Brown & Brown $0.38
BOH Bank of Hawaii $1.39
BMRC Bank of Marin Bancorp $0.57
CR Crane $1.12
HAL Halliburton $0.34
HMST HomeStreet $1.3
IBM International Business Machines $3.39
PETS PetMed Express $0.3
SMBK SmartFinancial $0.48
STLD Steel Dynamics $5.66
TRST Trustco Bank $0.74
ZION Zions Bancorp $1.33

 

Tuesday (January 25)

IN THE SPOTLIGHT: MICROSOFT

The Redmond, Washington-based global technology giant, Microsoft, is expected to post its fiscal second-quarter earnings of $2.28 per share, which represents year-over-year growth of over 12% from $2.03 per share seen in the same period a year ago.

The world’s largest software maker would post revenue growth of nearly 17% to around $50.3 billion. It is worth noting that with a track record of always beating earnings per share estimates in the last five years, Microsoft is one of the best FAANG stocks in terms of earnings surprises.

“We model Azure growth of 45% cc & see 2-3% of upside, translating to steady growth vs. 48% last qtr. We see potential for strong M365 demand ahead of price hikes, as well as continued execution from LNKD, PowerApps & Dynamics ERP. Although tougher PC/Server dynamics, we expect strengthening trends for C22. Expect Mar Q guide slightly above Street,” noted Derrick Wood, equity analyst at Cowen.

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE JANUARY 25

TICKER COMPANY EPS FORECAST
MMM 3M $2.07
AGYS Agilysys $0.13
AXP American Express $1.75
ADM Archer Daniels Midland $1.19
BXP Boston Properties $1.51
CNI Canadian National Railway $1.25
COF Capital One Financial $5.15
FFIV F5 $1.97
GE General Electric $0.84
JNJ Johnson & Johnson $2.12
LMT Lockheed Martin $8.04
LOGI Logitech International $1.23
NAVI Navient $0.81
NEE NextEra Energy $0.41
VZ Verizon Communications $1.28
WSBC WesBanco $0.67

 

Wednesday (January 26)

IN THE SPOTLIGHT: FOMC MEETING CONCLUDES, INTEL, TESLA

Tuesday and Wednesday will mark the first meeting of the Fed’s policymaking arm in 2022. At around 7:30 pm GMT on Wednesday, Jerome Powell will conduct a press conference. This is expected to be the biggest market event since investors expect more details about the central bank’s plan to raise interest rates.

INTEL: The California-based multinational corporation and technology company is expected to report its fourth-quarter earnings of $0.9 per share, which represents a year-over-year decline of about 40% from $1.52 per share seen in the same period a year ago. The company’s revenue would fall nearly 8% to $18.39 billion.

Intel remains controversial. Long-term skepticism remains and share losses will continue until products ramp on the Intel 4 node (old 7nm), but with a new CFO, improving PC and server market outlooks, cash inflows from the US Govt, Mobileye on the horizon, and a February analyst day now reconfirmed, we are cautiously optimistic sentiment can continue to gradually improve. Still LOTS to prove,” noted Matthew D. Ramsay, equity analyst at Cowen.

TESLA: The California-based electric vehicle and clean energy company is expected to report its fourth-quarter earnings of $2.31 per share, which represents year-over-year growth of 180% from $0.80 per share seen in the same period a year ago.

“Q4 results on 26 Jan are critical to validate (or not) the Q3 profit dynamics that could see Tesla 1) carve out meaningful share from legacy OEMs busy protecting their own share by ramping up BEVs and 2) claim a disproportionate share of the industry profit pool. We raise 2021-23 EBIT and FCF 10%, mostly on higher volume,” noted Philippe Houchois, equity analyst at Jefferies.

The high-performance electric vehicle manufacturer would post revenue growth of over 50% to $16.65 billion. The electric vehicle producer has beaten earnings estimates only twice in the last four quarters.

Tesla 4Q deliveries were 20% above our forecast, annualizing to over 1.2mm units, which is already above our prior FY22 forecast. We raise our forecasts and target to $1,300 on this ‘opening act’ and look for more in FY22,” noted Adam Jonas, equity analyst at Morgan Stanley.

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE JANUARY 26

TICKER COMPANY EPS FORECAST
ABT Abbott Laboratories $1.16
ANTM Anthem $5.11
AZPN Aspen Technology $1.41
T AT&T $0.76
KMB Kimberly-Clark $1.29
LRCX Lam Research $8.46
RJF Raymond James Financial $1.77
STX Seagate Technology $2.21
NOW ServiceNow $0.22
SIMO Silicon Motion Technology $1.56
SLG SL Green Realty $1.56
URI United Rentals $6.97
VRTX Vertex Pharmaceuticals $2.92
WHR Whirlpool $5.84

 

Thursday (January 27)

IN THE SPOTLIGHT: APPLE, VISA

APPLE: The consumer electronics giant would post its fiscal first-quarter earnings of $1.88 per share, which represents year-over-year growth of nearly 12% from $1.68 per share seen in the same period a year ago.

The iPhone manufacturer would post revenue growth of 6% to $118.13 billion. It is worth noting that with a track record of always beating earnings per share estimates in the recent five years, Apple is the best FAANG stock in terms of earnings surprises.

Apple is expected to report 1QFY22 earnings after market on Thursday, January 27th and host a call with investors at 5:00 PM ET. In our view, the recent strength in shares is a reflection of investors’ willingness to reward Apple for entering new markets, including electronic vehicles (EV) and the metaverse (with an augmented reality/virtual reality product). Now, we look for comments from management on its future product roadmap to justify the increase in share price,” noted Tom Forte, Senior Research Analyst at D.A. DAVIDSON.

“We are reiterating our BUY rating for Apple (AAPL) and putting our price target of $175 under review ahead of the company reporting 1QFY22 earnings.”

VISA: The world’s largest card payment company is expected to report its fiscal firth-quarter earnings of $1.70 per share, which represents a year-over-year decline of about 20% from $1.42 per share seen in the same period a year ago.

The global technology payment company would post revenue growth of nearly 19% to $6.8 billion. It is worth noting that the company has beaten earnings in most of the quarters in the last two years, at least.

Visa (V) is one of our preferred stocks, as it is a key beneficiary of resilient global consumer spend growth, the ongoing shift from cash to electronic payments, and broadening merchant acceptance. Global Personal Consumption Expenditure and secular growth drivers should support low double-digit revenue growth in the near-to-medium term,” noted James Faucette, equity analyst at Morgan Stanley.

“While Covid-19 headwinds are likely to persist, we see upside opportunity from the faster-than-expected recovery of travel. Continued investment in longer-term initiatives (faster payments, P2P, B2B) and partnerships continue to increase its TAM and offer an opportunity for compounding double-digit earnings growth for the foreseeable future.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE JANUARY 27

TICKER COMPANY EPS FORECAST
AOS A.O. Smith $0.77
ALK Alaska Air Group $0.21
BX Blackstone $1.3
CNX CNX Resources $0.5
CMCSA Comcast $0.73
DOW Dow $2.16
EMN Eastman Chemical $1.88
HCA HCA Healthcare $4.57
IP International Paper $1.02
JBLU JetBlue Airways $-0.39
MA Mastercard $2.2
MCD McDonald’s $2.32
LUV Southwest Airlines $-0.39
X U.S. Steel $5.12
V Visa $1.7

 

Friday (January 28)

TICKER COMPANY EPS FORECAST
ALV Autoliv $1.18
BAH Booz Allen Hamilton $0.97
CAT Caterpillar $2.23
CHD Church & Dwight $0.59
CL Colgate-Palmolive $0.79
RDY Dr. Reddy’s Laboratories $0.64
GNTX Gentex $0.33

 

In The Spotlight – Big Wall Street Banks as the Main Power in S&P 500

Banks’ earnings

Big Wall Street banks are in the spotlight right out of the gate with Goldman Sachs set to release results before markets open. They will be followed by Bank of America, Morgan Stanley, and U.S. Bancorp tomorrow (Wednesday). Bank results got off to a mixed start on Friday. JPMorgan Chase, Citigroup, and Wells Fargo all topped profit estimates for Q4 but JPMorgan and Citi delivered disappointments in other areas.

In particular, investors are nervous about higher expenses that cut into Q4 profits for both JPMorgan and Citi and which both banks forecast would continue to weigh on results in 2022. JPMorgan and Citi also saw -11% decreases in trading revenue, with fixed income trading down by double digits for both.

There are also signs of slowing loan growth that some analysts worry is an early sign of slowing consumer demand for big-ticket items as inflation continues to climb. While banks will eventually benefit from higher U.S. interest rates that are anticipated in the year ahead, a big pullback in consumer lending is a threat to some of the more lofty Wall Street expectations had for the sector in 2022.

Global economy

Globally, not a lot changed over the extended weekend. China might have provided a bit of a surprise with additional monetary easing into a struggling GDP and sagging real estate prices. It’s worth noting, Omicron has now been detected in Beijing for the first time, just three weeks before the city is due to host the Winter Olympics. Now the Chinese are shutting down and suspending the sale of Olympic tickets to the public.

Tensions remain heated between Hong Kong activists and Chinese government officials. North Korea launched its fourth missile test this month. After North Korea’s missile test last week, the US announced sanctions on eight North Korean and Russian individuals and entities for supporting North Korea’s ballistic missile programs.

Tensions between the U.S. and Russia seem to be headed in the wrong direction with Russia over the weekend moving troops and equipment into Belarus for joint military exercises.

The so-called “Allied Resolve” drills are set to take place near borders with NATO members Poland and Lithuania, as well as Ukraine where Russia has maintained its alarming military presence.

Most U.S. military experts don’t really think Russia has any real intentions of invading Ukraine or any other EU country. However, Western countries also have increased their military presence along borders and other strategic locations which increases the chances that a broader conflict could “accidentally” be sparked.

Europe’s gas supplies are also at risk as Russia continues to dangle the threat of cutting them off. Most of the tension stems from Russia’s demand that former Soviet countries be barred from entering NATO, something the U.S. and other NATO allies have refused.

In the USA, we are heading deeper into earnings season and investors are going to be paying close attention to costs and expenses. As I mentioned, late last week, JPMorgan warned that higher expenses and higher spending on hiring in 2022 could create some headwinds.

Looking ahead, it will be interesting to see how many executive teams start providing guidance and warnings that corporate expenses are rising faster than anticipated and what if any damage will be due to profit margins?

Remember, some companies have said they are passing the additional rising costs on to the consumer while other companies are eating a majority of the higher expenses in an attempt to gain more market share.

How the stock market decides to differentiate the strategy and style could greatly impact money flow and valuations. Goldman Sachs, J.B. Hunt, Charles Schwab, Citrix, Concentrix, and Interactive Brokers report earnings today.

Data to watch

Tomorrow we have Alcoa, Bank of America, Kinder Morgan, Morgan Stanley, Procter & Gamble, and United Airlines.

Thursday we have American Airlines, Baker Hughes, Netflix, and Union Pacific.

Then next week we have big names like Apple, Boeing, Caterpillar, McDonalds, Microsoft and Verizon reporting earnings.

Let’s also not forget next week we have the first Fed FOMC meeting of the new year.

With the U.S. Federal Reserve getting ever closer to implementing its first rate hikes, which most anticipate will begin in March, investors are growing less enchanted with some of the high-growth and momentum stocks that saw outsized share price gains last year.

This trend is most evident in the tech-heavy Nasdaq where nearly half of the index’s stocks have fallen by -50% from their recent peaks. The Nasdaq itself is only down by about -7% from its most recent record high. The selloff has been very much concentrated in highly-leveraged companies that have yet to deliver a profit, as the prospect of higher rates reduce future profit potential. Earnings results from these high-fliers will likely be harshly scrutinized as Wall Street tries to separate the “wheat from the chaff,” so to speak.

On the economic data front, Empire State Manufacturing and the NAHB Housing Market are today’s highlights.

For a look at all of today’s economic events, check out our economic calendar.

Stocks Move Closer To All-Time Highs

Stocks Set To Gain Ground At The Start Of The Week

S&P 500 futures are gaining ground in premarket trading as traders believe that the recent pullback is over and are ready to push stocks to all-time high levels.

Today, U.S. President Joe Biden will sign the $1 trillion infrastructure bill. The ceremony may provide additional support to infrastructure stocks like Caterpillar or Deere, which are already moving higher in premarket trading.

It’s a rather quiet day on the economic front, but traders have a chance to take a look at NY Empire State Manufacturing Index report for November. The report indicated that NY Empire State Manufacturing Index increased from 19.8 in October to 30.9 in November compared to analyst consensus of 21.2.

WTI Oil Tests Support At $80 As Coronavirus Fears Grow

WTI oil continues its attempts to settle below the psychologically important support level at $80 as traders are worried about rising coronavirus cases in Europe.

Austria has recently decided to impose a lockdown for unvaccinated, and other European countries look ready to introduce additional virus containment measures which may have a negative impact on oil demand.

It should be noted that the recent pullback in the oil market did not put too much pressure on oil-related stocks, but it remains to be seen whether demand for energy stocks will stay strong in case WTI oil manages to settle below the important $80 level.

Gold Stays Strong As Traders Remain Focused On Inflation

Gold continues its attempts to get to the test of the $1875 level as traders remain focused on rising inflation in U.S.

The recent strength of the U.S. dollar had no impact on the gold market while rising Treasury yields did not put any pressure on precious metals.

Gold mining stocks gained strong upside momentum in recent trading sessions and look ready to continue their upside move as traders stay bullish on gold.

For a look at all of today’s economic events, check out our economic calendar.

S&P 500 Futures Move Higher Amid Optimism In Infrastructure Stocks

Stocks Set To Open Higher

S&P 500 futures are gaining some ground in premarket trading while traders wait for additional catalysts which could push stocks to new highs.

S&P 500 moved from the 4350 level to the 4700 level without any pullback, and its RSI has entered into the overbought territory.

The strong earnings season provided significant support to stocks, while recent news on COVID-19 treatments from Merck and Pfizer pushed the market to new highs.

Over the weekend, the $1 trillion infrastructure bill has finaly passed the U.S. House of Representatives. Infrastructure-related stocks like Caterpillar or Deere are already moving higher in premarket trading, and this market segment will likely enjoy significant support today.

Gold Moves Towards $1830 As U.S. Dollar Retreats From Highs

The U.S. Dollar Index, which measures the strength of the U.S. dollar against a broad basket of currencies, failed to settle above the resistance near yearly highs at 94.50 and moved closer to the 94 level.

Weaker dollar provided support to gold, which managed to settle above the psychologically important $1800 level and moved closer to the resistance level at $1830.

In case gold manages to settle above the resistance at $1830, it will gain additional upside momentum and move towards the next resistance at $1845 which will be bullish for gold mining stocks.

WTI Oil Tries To Settle Above $82

WTI oil has recently made an attempt to settle above the 82 level as traders continued to bet on the recovery of oil demand.

The recent pullback was short-lived, and WTI oil quickly managed to find buyers below the $80 level. Energy-related stocks are trading close to yearly highs, and they will have a good chance to gain additional upside momentum during today’s trading session.

While crude inventories have been moving higher in recent weeks, the market looks focused on rising demand, infrastructure investments and the reopening of international travel in the U.S., which serve as bullish catalysts for oil.

For a look at all of today’s economic events, check out our economic calendar.

Nasdaq Hits Record High with Apple, Amazon Results on Deck

High-profile stocks Tesla Inc, Apple Inc and Amazon.com Inc boosted the Nasdaq and helped propel the index to a record after the S&P 500 and Dow reached fresh peaks earlier in the week.

Both Apple and Amazon were scheduled to post quarterly results after the closing bell.

Caterpillar Inc added rose after reporting a better-than-expected quarterly profit on rising commodity prices, while a bullish forecast from drugmaker Merck & Co Inc helped boost its shares.

Investors were also keeping an eye on Washington where President Joe Biden said he had secured a new $1.75 trillion framework for economic and climate change spending.

“Earnings continue to be very good,” said Bill Stone, chief investment officer at the Glenview Trust Co in Louisville, Kentucky, who also noted that Biden’s framework, if it succeeds, would not boost corporate taxes as investors had previously feared.

“Underneath the surface, that’s a positive for corporate earnings” going forward, said Stone.

According to preliminary data, the S&P 500 gained 44.85 points, or 0.98%, to end at 4,596.25 points, while the Nasdaq Composite gained 212.28 points, or 1.39%, to 15,448.12. The Dow Jones Industrial Average rose 236.94 points, or 0.67%, to 35,727.63.

Solid earnings also helped offset a report from the Commerce Department which showed the U.S. economy grew at a 2% annualized rate in the third quarter as COVID-19 infections flared up, short of the 2.7% estimate, while another set of data showed fewer Americans filed new claims for unemployment benefits last week as the labor market slowly improves.

“Clearly we are seeing a large batch of macroeconomic data that has been coming through during the middle of third-quarter earnings reporting season and you are seeing a little bit of a tug-of-war that exists between macroeconomic data that is appearing to be somewhat softer at the margin and corporate performance which is proving to be better than expectations,” said Bill Northey, senior investment director at U.S. Bank Wealth Management in Minneapolis.

Earnings reports have helped advance in the benchmark S&P index in 10 of the previous 12 sessions, with analysts now expecting profits for S&P 500 companies to grow 38.6% year-on-year in the third quarter.

Of the 244 S&P 500 companies that had reported by Thursday morning, 82% had beaten estimates.

Among the decliners however was EBay Inc whose shares tumbled after the e-commerce firm forecast downbeat holiday-quarter revenue.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Chuck Mikolajczak and Sinéad Carew in New York; Editing by Matthew Lewis)

Marketmind: The ECB’s Inflation Conundrum

A look at the day ahead from Tommy Wilkes.

Will it or won’t it become the latest central bank to warn that price pressures are more severe — and less transitory — than they appeared a few months ago?

The difficulty for the ECB is that it wants to maintain its ultra-dovish stance to boost the region’s economy, but at the same time, it must face up to inflation expectations that are running at seven-year highs above 2%.

The prospect of slowing economic growth and central bank policy tightening is flattening bond yield curves worldwide — taking longer-dated borrowing costs lower. Europe is no exception, with German 10-year yields on Wednesday seeing their biggest daily drop in eight months.

A busy day for central bank activity elsewhere too. The Bank of Japan delivered another dovish statement, projecting inflation to stay below target for at least two more years. It just reinforces the view it will lag others in dialling back crisis-mode policies.

The Reserve Bank of Australia, meanwhile, skipped a chance to buy a government bond at the heart of its stimulus programme, sending yields soaring above target and raising wagers it will become yet another bank opting for an early rate hike.

Supply chain disruptions continue to dominate the earnings season, with Volkswagen the latest carmaker to report lower-than-expected operating profit, partly because of the chip shortage.

Samsung reported its highest quarterly profit in three years but expect component shortages to affect chip demand.

Stock markets have pulled back, with Germany’s DAX opening 0.2% lower and Wall Street futures only marginally higher.

(For graphic on Euro zone inflation expectations – https://fingfx.thomsonreuters.com/gfx/mkt/xmvjolwdgpr/euro%20zone%20inflation.PNG)

Key developments that should provide more direction to markets on Thursday:

-ECB meeting

-German unemployment/prelim CPI Oct (4.4% Y/Y/ Reuters poll)

-Euro zone consumer inflation expectations Oct

-Norway Central Bank Governor Øystein Olsen speaks

-Emerging markets: Egypt central bank meeting

-U.S. flash GDP Q3 (2.8% Reuters poll)

-U.S. core PCE flash Q3 (4.5% Reuters poll)

-U.S. Initial jobless claims

-U.S. 7-yr note auction

-U.S. earnings: Allegheny, AllianceBernstein, Caterpillar, Comcast, Hershey, Mastercard, Merck, Newmont Mining, Moody’s, Royal Caribbean Cruises, T-Rowe Price, Yum Brands, Amazon, Apple, Gilead Sciences, Starbucks, United States Steel.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Tommy Wilkes, editing by Sujata Rao)

Today’s Market Wrap Up and a Glimpse Into Wednesday

Stocks finished modestly higher, with all three indices closing in the green. The S&P 500 managed to set another record, the broader market index’s fourth in a row, on robust economic data, though it finished off its highs of the session. Today marks the 33rd time that the S&P 500 has reached all-time-high territory year-to-date.

Homebuilders were a bright spot after S&P Case-Shiller revealed that home prices climbed close to 15% higher in April year-over-year on the heels of a 13.3% gain in March. The home price index hasn’t been at this level in more than three decades.

Tech stocks led by Apple powered the Nasdaq to its latest all-time high. Wall Street analysts are eyeing chip stocks as beneficiaries of the introduction of the iPhone 13. Along those lines, Skyworks Solutions advanced 4.5% today. Consumers are exhibiting great confidence, with the Conference Board’s June results coming in stronger than anticipated.

The Dow Jones Industrial Average barely eked out a win, no thanks to Caterpillar, which is down 11% in the month of June alone. Otherwise, inflation worries appear to have been shelved for now. Investors, however, have plenty more data to weigh this week that might help to determine whether the bulls will remain in control.

Active Stocks

  • Virgin Galactic shed 14% on the day. Investors who are eyeing the stock ahead of Richard Branson’s company’s first commercial trip to space might consider it a buying opportunity. Virgin Galactic is proceeding with test flights this summer. Rival space travel company Blue Origin, founded by Jeff Bezos, plans to make its first flight with passengers next month, the excitement for which could spill over into Virgin Galactic.
  • Context Logic, a mobile e-commerce company that is another meme stock play, gave back some recent gains, falling 7%. The stock, which trades under the symbol WISH, is up almost 75% in the month of June in this new market paradigm.

Look Ahead

Second-quarter earnings reports will start to come out in earnest in the coming weeks. On Wednesday, meme stock Bed Bath & Beyond will take the spotlight with its fiscal Q1 earnings report prior to the opening bell. The stock is trading higher by 1% in after-hours.

The ADP employment report comes out at 8:15 a.m. ET ahead of the all-important employment report on Friday. In addition, there are a couple of Fed officials scheduled to speak on Wednesday, including Atlanta Fed President Raphael Bostic and Richmond Fed President Tom Barkin.

Today’s Market Wrap Up and a Glimpse Into Friday

An infrastructure deal was reached in Washington, D.C. and stocks were up on Wall Street. The S&P 500 set a new record high after rising fractionally to 4266.49. The broader market index last reached a new high in mid-June. The recent Fed-induced losses did not last long as investors decided to look at the market glass as half-full.

The Dow Jones Industrial Average isn’t too far from its new all-time high after tacking on about 1% in Thursday’s session. The Nasdaq was fractionally higher. Some of the standouts in today’s session include:

  • Tesla gained 3.5%, extending yesterday’s rally.
  • Caterpillar rose 2.6%, reclaiming some ground it lost on inflation and rate-hike fears last week.
  • FedEx stock is down in extended hours despite experiencing record Q4 earnings and revenue that increased 27%. The company swung to a profit after a quarterly loss in the year-ago period, reporting net income of USD 1.87 billion, or USD 6.88 per diluted share. The transportation company’s services have been in high demand throughout the pandemic, including the delivery of vaccines. The stock is seeing heavy options activity including bullish expectations for shares to gain as much as 18% by the July expiration of contracts.

Stocks to Watch

Nike stock is up 11% in after-hours trading after beating on the top and bottom lines with Q4 results. The company’s results were driven by a recovery in the North American region, where sales grew more than twofold YoY to a new peak of USD 5.38 billion. Nike also experienced robust results in China and its digital sales segment. The trend of comfortable clothing is persisting even after the lockdowns have lifted.

In addition, The Trade Desk, an ad stock, gained 17% today and is trading higher in the after-hours. The stock is benefiting from Google’s decision to delay its move to do away with cookies until 2023. Google is making the change in response to privacy concerns and was initially expected to remove the tracking tech next year.

Look Ahead

On the economic front, personal income and spending for May will be released on Friday. Now that the government stimulus checks are a thing of the past, the expectations are for a further decline in personal income. It will likely not be of the same magnitude as the 13.1% MoM drop in April over March levels, but economists, nonetheless, are expecting a decline. Personal spending is expected to rise slightly.

Markets Surge Despite Unprecedented Violence at U.S. Capitol

In a news-filled day, the Dow Jones hit an all-time high on Wednesday (Jan. 6), despite unprecedented unrest taking place in Washington D.C.

News Recap

  • The Dow climbed 438 points or 1.4% and briefly rose more than 600 points earlier in the day. The S&P 500 also gained 0.6% and hit an intraday record, while the Nasdaq fell 0.6%. The small-cap Russell 2000 surged by nearly 4%.
  • The day began with investors focused on the Georgia U.S. Senate special election runoff . Democrat Raphael Warnock defeated incumbent Republican Kelly Loeffler, with other Democrat Jon Ossoff announced as the winner over incumbent Republican Sen. David Perdue later in the day.
  • With a Democrat sweep in Georgia, the party now has control of the Senate. Although it is a 50-50 split (with two independents) in the Senate, both Democrats win, they have full control because Vice President-elect Kamala Harris will serve as the tiebreaker vote.
  • Many believe that because President-elect Biden, a Democrat, has a House and Senate under Democrat control, he could more easily pass higher taxes and progressive policies that may hurt the market. On the other hand, others believe that this Democrat sweep could bring into effect a larger and quicker stimulus relief bill.
  • The real news of the day was what happened at the U.S. Capitol building. After President Trump (and his family) led a “Stop the Steal” rally in Washington, D.C. to protest Congress’ certification of Joe Biden as the next president, angry MAGA supporters did the unthinkable and stormed the Capitol.
  • Wednesday (Jan. 6) was the first time since 1814 that the Capitol building was physically breached by hostile actors.
  • The invasion of the Capitol occurred after Vice President Mike Pence rejected President Trump’s calls to block Joe Biden’s election confirmation. Shortly after, the Capitol went into full lockdown.
  • Later that night, the Capitol was secured and Congress reconvened to officially certify Biden as the president. The CBOE Volatility Index (VIX) moved higher due to the unrest at the Capitol.
  • Caterpillar (CAT) surged 5.5%, while big banks such as JPMorgan Chase (JPM) and Bank of America (BAC) gained 4.7% and 6.3%, respectively. Other names and sectors that could be aided by Biden’s agenda rose as well such as the Invesco Solar ETF (TAN) which boomed 8.4%.
  • Tech lagged on the day due to fears of higher taxes and higher stimulus potential. Facebook (FB) and Amazon (AMZN) each fell more than 2%, while Netflix (NFLX) dipped 3.9%.
  • The 10-year Treasury note yield topped 1% for the first time since March.

What a newsworthy day Wednesday (Jan. 6) was. What started as a day focused on Senate runoff elections with the balance of Senate power at stake, ended with President-elect Biden being officially confirmed as the next president. But in between? A mob took over the capitol building! Did you ever think you would read that sentence in your lifetime?

Love him or hate him, President Trump is an eccentric character to put it lightly. Scorned, and still convinced that he won the election, Trump and his bruised ego whipped his supporters into a frenzy during a “Stop the Steal” rally and encouraged them to march towards the Capitol and make their voices heard. Somehow the protest turned into a storming of the Capitol after Vice President Mike Pence refused to overturn the election. Pence was later ushered out of the Senate and the Capitol went into lockdown.

What’s truly shocking here is that the markets still went up! In fact, the Dow hit yet ANOTHER all-time high! Whether you like it or not, this has to give you some sort of faith in the resiliency of capitalism,

The results of the Georgia election can be credited for the market surge.

Although some sectors plummeted due to fears of higher taxes and stricter regulations, with full Democrat control of the Presidency, Senate, and House, there is clarity for one, and expectations of further spending and government stimulus.

Goldman Sachs expects another big stimulus package of around $600 billion . While this could be bad for the national debt and have long-term consequences, in the short-term, it could send the economy heating. Small-cap stocks surged as a result.

I still believe that there will be a short-term tug of war between good news and bad news. Many of these moves upwards or downwards are based on emotion and sentiment, and I believe there could be some serious volatility in the near-term. Although markets on Wednesday (Jan. 6) may have been overly excited from the “Blue Wave” thanks to Georgia, consider this: the Capitol was invaded and the pandemic is still wreaking havoc! Even though the markets gained and the 10-year treasury ticked above 1% for the first time since March, the VIX still rose which means that fear is on the rise.

There was no pullback to end 2020 as I anticipated, but I still believe that markets have overheated in the short-term, and that between now and the end of Q1 2020 a correction could happen.

Carl Icahn seemingly agrees with me, and told CNBC on Monday (Jan. 4) that “in my day I’ve seen a lot of wild rallies with a lot of mispriced stocks, but there is one thing they all have in common. Eventually they hit a wall and go into a major painful correction.”

National Securities’ chief market strategist Art Hogan also believes that we could see a 5%-8% pullback as early as this month.

I believe though that corrections are healthy and could be a good thing. Corrections happen way more often than people realize. Only twice in the last 38 years have we had years WITHOUT a correction (1995 and 2017). I believe we are overdue for one since there has not been one since the lows of March 2020. This is healthy market behavior and could be a very good buying opportunity for what I believe will be a great second half of the year.

While there will certainly be short-term bumps in the road, I love the outlook in the mid-term and long-term once vaccines become more widely available. The pandemic is awful right now, and these new infectious strains out of the U.K. and South Africa are quite concerning. But despite this, I believe the positive manufacturing data released on Tuesday (Jan. 5) is a step in the right direction, especially considering all the restrictions that most countries are living through.

The consensus is that 2021 could be a strong year for stocks. According to a CNBC survey which polled more than 100 chief investment officers and portfolio managers, two-thirds of respondents said the Dow Jones will most likely finish 2021 at 35,000, while five percent also said that the index could climb to 40,000.

Therefore, to sum it up:

While there is long-term optimism, there are short-term concerns. A short-term correction between now and Q1 2021 is very possible. But I do not believe, with conviction, that a correction above ~20% leading to a bear market will happen.

Can Small-caps Own 2021?

Small-caps are the comeback darlings of the week. Although I believed that the Russell 2000’s record-setting run since the start of November was coming to an end, it has rallied over 5% in the last two trading days. Thanks to a Democrat sweep in Georgia and hopes of further economic stimulus, small-cap stocks have climbed back towards record highs.

I love small-cap stocks in the long-term, especially as the world reopens. A Democrat-dominated Congress could help these stocks too. But I believe that in the short-term, the index, by any measurement, has simply overheated. Before Jan. 4, the RSI for the I WM Russell 2000 ETF was at an astronomical 74.54. I called a pullback happening in the short-term due to this RSI, and it happened. Well now the RSI is back above 72, and I believe that a bigger correction in the near-term could be imminent.

Stocks simply just don’t always go up in a straight line, and that’s what the Russell 2000 has essentially been between November and December.

What this also comes down to is that small-caps are more sensitive to the news – good or bad. I believe that vaccine gains have possibly been baked in by now. There could be another near-term pop due to hopes of further stimulus, but I believe that it’s likely possible that small-caps in the near-term could trade sideways before an eventual larger pullback.

I truthfully hope small-caps decline a minimum of 10% before jumping back in for long-term buying opportunities.

SELL and take Wednesday’s (Jan. 6) profits if you can- but do not fully exit positions .

If there is a pullback, this is a STRONG BUY for the long-term recovery.

Thank you for reading today’s free analysis. I encourage you to sign up for our daily newsletter – it’s absolutely free and if you don’t like it, you can unsubscribe with just 2 clicks. If you sign up today, you’ll also get 7 days of free access to the premium daily Stock Trading Alerts as well as our other Alerts. Sign up for the free newsletter today!

For a look at all of today’s economic events, check out our economic calendar.

Thank you.

Matthew Levy, CFA
Stock Trading Strategist
Sunshine Profits: Effective Investment through Diligence & Care

* * * * *

All essays, research, and information found above represent analyses and opinions of Matthew Levy, CFA and Sunshine Profits’ associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Matthew Levy, CFA, and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Levy is not a Registered Securities Advisor. By reading Matthew Levy, CFA’s reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading, and speculation in any financial markets may involve high risk of loss. Matthew Levy, CFA, Sunshine Profits’ employees, and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

 

Record High Markets, Despite Poor Jobs Report

The markets closed the week at record highs and booked weekly gains for the fourth time in five weeks. This comes despite a disappointing U.S. jobs report.

News Recap

  • The Dow Jones gained 248 points, or 0.83, the S&P 500 gained 0.9%, and the Nasdaq advanced 0.7%. All three indices posted both intraday and closing record highs. Meanwhile, the small-cap Russell 2000 also closed at a record high and once again led the markets with gains of 2.2%.
  • The November jobs report grossly disappointed and came well short of estimates. The report stated that the U.S. added 245,000 jobs compared to the consensus estimate of 440,000.
  • November’s unemployment rate matched expectations and fell to 6.7% from 6.9%.
  • The US trade deficit widened to $63.1 billion in October from a revised $62.1 billion. Market expectations placed this number at $64.8 billion.
  • New data was encouraging for US factory orders. New orders for US manufactured goods beat expectations and jumped 1% from a month earlier. This marks the 6th consecutive month of rising factory orders.
  • As COVID-19 numbers continue to reach record highs in new infections, single-day deaths, and hospitalizations, a report from Thursday that Pfizer may have issues rolling its vaccine out was quite concerning . Judging by the markets’ performance on Friday, however, investors are not overly concerned.
  • Stimulus talks continued for another day as Republicans and Democrats attempted to break a stalemate and pass a relief package before the end of the year.
  • Chevron and Caterpillar each rose 3.9% and 4.3%, respectively, and led the Dow higher.
  • Energy was the best-performing S&P 500 sector, gaining 5.4%.
  • Friday’s jump led to the major indices booking their fourth weekly gain in five weeks. The Dow rose 1%, the S&P 500 gained 1.7%, and the Nasdaq rallied 2.2%. The Russell 2000 also gained over 2% this week.

In the short-term, there will be optimistic days where investors rotate into cyclicals and value stocks, and pessimistic days where there will be a broad sell-off or rotation into “stay-at-home” names. On other days, like Friday, the markets will broadly rise without any one specific catalyst.

In the mid-term and long-term, there is certainly a light at the end of the tunnel. Once this pandemic is finally brought under control and vaccines are mass deployed, volatility will surely stabilize, and optimism and relief will permeate the markets. In fact, CNBC personality Jim Cramer said that beating COVID-19 would feel like “the end of prohibition.” Stocks especially dependent on a rapid recovery and reopening such as small-caps should thrive.

Markets will continue to wrestle with the negative reality on the ground and optimism for an economic rebound in 2021. While more positive vaccine news continues to trickle in day by day, there is still discouraging COVID-19 news, economic news, and geopolitical news to consider. Amidst the current fears of a double-dip recession with further COVID-19-related shutdowns and no stimulus, it is very possible that short-term downside persists. However, it’s encouraging that Democrats and Republicans are speaking again, and if a stimulus deal passes before the end of the year, it could mean more market gains.

Due to this tug of war between good news and bad, any subsequent move downwards will likely be modest in comparison to the gains since the bottom in March and since the start of November. It is truly hard to say with conviction that another crash or bear market will come. If anything, the constant wrestling match between sentiments will keep markets relatively sideways.

Therefore, to sum it up:

While there is long-term optimism, there is short-term pessimism. A short-term correction is very possible, but it is hard to say with conviction that a big correction will happen.

The S&P, which has seen three record closing highs this week, has skyrocketed to unprecedented levels at a breakneck pace. However, there are a few indicators that show that the S&P could face some near-term volatility after this run, but again, it is hard to say with conviction there will be a major downturn.

The RSI of 67.96 keeps the S&P in a HOLD category. However, it is certainly higher than it was to start the week and continues creeping towards an overbought 70 level.

The volume has stayed relatively stable since Thanksgiving though. While the sharp decline in volume after November 9th was concerning, especially relative to its record closes, the stabilization is encouraging.

Low volume, especially a sharp drop in volume, means that there are fewer shares trading. Lower volume also means less liquidity across the index, and an increase in stock price volatility. Therefore, this stabilization of volume adds some confidence in the volatility of the index.

Because of how far and fast the S&P 500 has risen, a further pullback from these elevated levels would not be a shock… but another surge based on good news would not be a shock either. Because of all of the uncertainty, a HOLD for the S&P is an appropriate call. For an ETF that attempts to directly correlate with the performance of the S&P, the SPDR S&P ETF (SPY) is a good option.

Thank you for reading today’s free analysis. I encourage you to sign up for our daily newsletter – it’s absolutely free and if you don’t like it, you can unsubscribe with just 2 clicks. If you sign up today, you’ll also get 7 days of free access to the premium daily Stock Trading Alerts as well as our other Alerts. Sign up for the free newsletter today!

For a look at all of today’s economic events, check out our economic calendar.

Thank you.

Matthew Levy, CFA
Stock Trading Strategist
Sunshine Profits: Effective Investment through Diligence & Care

* * * * *

All essays, research, and information found above represent analyses and opinions of Matthew Levy, CFA and Sunshine Profits’ associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Matthew Levy, CFA, and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Levy is not a Registered Securities Advisor. By reading Matthew Levy, CFA’s reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading, and speculation in any financial markets may involve high risk of loss. Matthew Levy, CFA, Sunshine Profits’ employees, and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

 

Caterpillar Testing the 2018 All-Time High

Dow component Caterpillar Inc. (CAT) rallied more than 2% in Friday’s U.S. session after Wells-Fargo pounded the table, upgrading the heavy equipment manufacturer to ‘Overweight’. The rally stretched within 5 points of January 2018’s all-time high at 173.24, initiating a test that could eventually trigger a major breakout. However, market players may need to tread lightly because this level marks resistance while accumulation has failed to keep up with bullish price action.

Caterpillar Slumping 2020 Profits

The company reports Q3 2020 earnings on Oct. 27, with analysts expecting the company to report a profit of $1.15 per-share on $9.78 billion in revenue. That EPS performance would mark a 57% decline compared to the same quarter in 2019, raising doubts about the sustainability of a breakout. The stock is also trading nearly 40 points higher now than it was during the Q3 2019 earnings release, suggesting that short sellers will reload positions, given the right catalyst.

Well Fargo analyst Andy Casey outlined three reasons for higher Caterpillar prices, as follows:

  1. Revenue growth from global growth acceleration, with signs that key markets critical to the bear case are beginning to bottom, with likely growth by mid-2021 and the absence of 2020 inventory reduction actions.
  2. Expected margin improvement due to higher revenue generation across improved cost structure, although still below 2021 Investor Day target and in-line for 2022.
  3. Anticipated higher cash flow that could be allocated to enhance growth.

Wall Street And Technical Outlook

Wall Street consensus remains mixed despite the upgrade, with a ‘Moderate Buy’ rating based upon 7 ‘Buy’, 7 ‘Hold’, and 1 ‘Sell’ recommendation. Price targets currently range from a low of $120 to a Street-high $220 while the stock ended Friday’s session more than $14 above the median $155 target. The company may need to fire on all cylinders in next week’s earnings report in order to sustain this elevated placement.

Caterpillar is a cyclical play near an all-time high in the 11th year of a bull market that many believe is growing ‘long-in-the-tooth’. Traditionally, their performance tracks economic boom and bust periods, as well as developments in BRIC countries where heavy earth movers are needed for industrialization. 2020 China growth is stronger than expected after pandemic shutdowns but North America and Europe are posting sub-par numbers, adding risk for breakout buyers.

For a look at all of today’s economic events, check out our economic calendar.

U.S. Stocks To Watch Today

Caterpillar

Caterpillar will report its first-quarter earnings results today, before the market open. This report is very interesting since Caterpillar is a great gauge of construction activity which may be hit hard due to cuts to capital spending all over the world.

Analysts expect that Caterpillar will report earnings of $1.67 per share and also predict that second-quarter earnings will dip to $0.69 per share. However, the company is expected to restore its earnings power by the fourth quarter.

Caterpillar shares are down about 20% year-to-date and their current price implies that the negative impact from coronavirus will be mostly a one-time event, and the company will soon return to business as usual.

In this light, the market will focus on management’s commentary as the risk of a prolonged downturn in the world construction activity is material.

Pfizer and Merck

Two healthcare giants will provide their first-quarter earnings reports today before the market open. Naturally, all big healthcare stocks are in spotlight during the coronavirus pandemic.

Pfizer is expected to report earnings of $0.71 per share, while Merck is expected to report earnings of $1.34 per share. The market will likely focus on commentary regarding the potential drugs and vaccine against COVID-19 but traders will also watch out for signs of dividend growth since both companies are solid dividend payers.

Advanced Micro Devices

AMD is one of the stocks which have performed very well during the current downturn and gained more than 20% of market capitalization since the beginning of this year.

AMD is trading just below its all-time highs, and a good earnings report can lead to a breakout to new levels and increased upside momentum. The company will report its earnings today after the market close.

Currently, analysts expect that AMD will report earnings of $0.18 per share and also expect continuation of earnings growth in the upcoming quarters. AMD is more expensive on a forward P/E basis than its competitor Intel since the market believes that AMD will increase its market share and expand its earnings power.

In case the first-quarter report confirms this consensus, AMD shares may have major upside, especially in case there’s no sell-off in the general market. I’d expect increased trading activity ahead of the report so AMD shares may be very volatile today.

Global Stocks Struggle as the Pressure on Stock Markets Continues

On Tuesday afternoon, the markets managed to avoid the large-scale sale. The initial decline of the US stock indices by more than 2% was mostly redeemed. Index S&P500 lost 0.55%. In a moment Caterpillar And 3M shares were in decline significantly (by more than 10%). Strictly speaking, their reporting was not bad, but investors were worried by the impact of tariffs on the prospects of companies. Caterpillar noted the anticipated increase in costs due to steel tariffs. Diversified 3M indicated a probable drop in revenues due to the volatility in foreign exchange rates.

Markets Avoid the Big Sale-Off

Nevertheless, sharply declined shares found their buyers, significantly reducing the initial drawdown. A similar situation is observed on Asian bourses in the morning. The indices of China and Japan at the time of writing remain near the levels of the day opening.

However, American key indices S&P500 and DJI, and Asian Nikkei225 and Heng Seng remain below their 200-day moving averages. This may lead to a further sale of stocks by large funds that perceive this line as an important trend signal.

The currency market maintains a balance of forces supporting the dollar near the highs of the month. The dollar index has been traded near 95.70 level for the fifth day, as the focus of the markets shifted to the reporting of companies, as well as to the expectation of comments from major global central banks.

Later today, the Bank of Canada will announce its decision on the rates. The third increase by a quarter of a percentage point to 1.75%  is expected this year. A hawkish tone of the comments is able to support the Canadian currency.

In the evening, the Beige book will be published, it is an economic review from the regional branches of the Fed. The attention of the market participants will be focused on the comments about the influence of import tariffs on the prices and profit and consumer activity.


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On Thursday, the focus shifts to the ECB, where the euro often experiences a surge of volatility during a Draghi press conference.

Thus, the current delicate balance of the foreign exchange market will soon be seriously tested. Investors in the stock markets are nervous because of the worsening prospects of companies’ incomes, which can force the Fed to be cautious about the plans of tightening the policy, but inflation is gaining momentum due to the tariffs, rigid labor market and currency volatility in developing countries.

These conditions are potentially favorable for gold. It unfolded to growth from early October, trading about $1230 currently and being pushed away from the bottom of the $1180 per ounce.

This article was written by FxPro

Equities Sink On Global Tensions, VIX Jumps 20%; Earnings Still In Focus

The Jamal Khashoggi Killing Has Markets On Edge

Global tensions sent equities markets around the world diving for cover. Fear of slowing growth, the fallout from the US-Sino trade war, and the killing of journalist Jamal Khashoggi all played a part. Asian markets were down the most falling an average 2.5% to 3.0% at the close of the Tuesday session. Indices in the region are trading at or near long-term low levels with the Korean Kospi hitting a near 20 month low with today’s action. The Volatility Index rose more than 20%.

European markets were down an average -1.0% to -2.0% at mid-day, up off the low of the session but still at or near their own 20-month lows and indicated lower. Focus in this region is on the murder of Khashoggi which is turning into a major international event. The journalist, a self-imposed exile from Saudi Arabia, has deep ties to the US, EU and other major western powers who are now faced with the problem of how to deal with the Saudi’s now the cat is out of the bag. The Saudi’s have promised not to weaponize oil but the crisis is far from over.

The Tech Wreck

Technology stocks were hit the hardest in the EU session. Chipmaker AWS led with a loss near -25% as the companies outlook for year-end sales was not convincing enough for shareholders to stand pat. AWS released earnings yesterday delivering a near 50% increase in revenue with upbeat guidance for the final three months of the year.

Tech stocks led Tuesday’s route in both the EU and the US. US futures were indicated down an average 1.5% to 2.0% going into the opening bell and looking weak despite a round of positive earnings releases. Reports from United Technologies, Harley Davidson, Verizon and McDonald’s all beat analysts expectations on the top and bottom lines sending shares of these stocks higher in early action.

US Corporate Earnings Are Strong, Outlook OK

United Technologies and Harley Davidson were able to raise guidance, executives at HOG say stronger sales in the EU have helped to offset issues with tariffs and were a boost to earnings. Verizon’s beat was driven by better than expected subscriber growth. On the flipside, shares of Caterpillar fell more than -6.0% despite its top and bottom line beat due to poor outlook and weak guidance. The company says tariffs and trade woe are having an impact on profitability but was able to reaffirm its guidance. The problem for traders is that guidance was in a range with the lower end well below analysts consensus.

McDonald’s beat was driven by strong comp store sales. Comps in the US rose a strong 2.4%, just shy of the 2.5% estimated, but global comps rose a whopping 4.2%. Analysts had been expecting a more tepid 3.7% but strength was seen in the lead international markets, up 5.4%, and in the high-growth target market, up 4.6%. There is no economic data scheduled for today so traders will be focused on earnings and global headlines. Notable earnings after the close of Tuesday’s US session are Chubb, Texas Instruments, and iRobot.

Breaking News: China Manufacturing PMI Falls Short of Expectations for July

The major U.S. stock indexes tumbled at the start of the week with the selling led by a steep drop in the technology sector for a third consecutive session.

In the cash market, the benchmark S&P 500 Index settled at 2802.60, down 16.22 or -0.58%. The blue chip Dow Jones Industrial Average finished at 25306.83, down 144.23 or -0.57% and the tech-driven NASDAQ Composite closed at 7630.20, down 107.13, down 1.38%.

Facing pressure in the NASDAQ Composite Index were shares of Facebook and Netflix, which lost 2.2 percent and 5.7 percent respectively. FANG stocks Amazon and Google-parent Alphabet fell 2.1 percent and 1.8 percent respectively.

The FANG stocks weren’t the biggest losers on Monday, however. Shares of Twitter dropped another 8 percent. It was followed by a 7.7 percent loss in Take-Two Interactive, a 5.7 percent decline in Electronic Arts and a 5.5 percent pullback in Akamai Technologies.

Earnings News

Caterpillar said in its second-quarter earnings report that recently imposed tariffs will shave off between $100 million and $200 million from its bottom line in the second half. The company also reported better-than-expected earnings and raised its full-year outlook, however.

Economic News

Reports were scare on Monday with U.S. Pending Home Sales coming in 0.9% higher versus an estimate of 0.4%. It also reversed last month’s 0.5% decline.

Rattling investors, however, was a report by Reuters that Canada, the European Union, Japan, Mexico and South Korea will meet next week to discuss a response to threats made by President Donald Trump about slapping tariffs on U.S. auto imports.

Tuesday’s Early Reports

In breaking news, China reported on Tuesday that factory activity was slightly lower than expected in July, with the official manufacturing Purchasing Manager’s Index (PMI) coming in at 51.2

The Chinese manufacturing PMI had been forecast to fall to 51.3 in July from 51.5 in June, according to a poll of economists by Reuters.

China’s official services PMI also fell in July. The report showed a reading of 54.0 from 55.0 in June.

In Japan, the unemployment rate rose to 2.4%, versus a 2.3% estimate and 2.2% previous read. Preliminary Industrial Production fell by 2.1%, worse than the -0.3% forecast and -0.2% previous read.

In New Zealand, Building Consents fell 7.6% versus a 6.9% previous report. ANZ Business Confidence was -44.9. Last month the report was -39.0.

Australian Building Approvals jumped 6.4% versus a 1.1% estimate. However, the previous month was revised lower by 2.5%. Private Sector Credit hit the estimate of 0.3%, slightly better than last month’s 0.2%.

What To Expect Ahead of A Busy Earnings Week?

Major U.S Benchmark indices finished the week on the red as investors reacted to mixed earnings reports. Alphabet Inc. (NASDAQ: GOOGL) and Amazon.com, Inc. (NASDAQ: AMZN) led the foray in beating earnings estimates as Facebook, Inc. (NASDAQ: FB) Imploded on missing estimates and providing guidance that fell short of expectations.

It yet again promises to be a busy week as a string of high profile companies is expected to post their quarterly earnings results.

Earnings Report expectations

Apple Inc. (NASDAQ: AAPL)

In the wake of Google and Amazon beating estimates, focus this week shifts towards Apple Inc. (NASDAQ: AAPL) given the amount of market cap it commands. The iPhone maker is to post its second earnings report after market close on July 31, 2018.  Analysts expect the company to post revenue of $61.14 billion representing a 15% year-over-year increase. Earnings per share, on the other hand, are projected at $2.16 a share.

Wall Street will also pay close attention to the number of iPhones the company sold in the second quarter, after a disappointing first quarter whereby unit sales rose by only 1.5 million. In the March quarter, service revenue rose 31% to $9.19 billion thereby helping the company beat sales and EPS expectations.

For the June quarter, Wall Street expects service revenue to come in at $9.21 billion representing a 21% increase. Investors will also pay close attention to other products sales made up of headphones, Apple TV Set-tops, as well as Apple Watch. Expectations are that the company will report a 34% increase in revenues in this segment at $3.68 billion.

Tesla Inc. (NASDAQ: TSLA)

Tesla Inc. (NASDAQ: TSLA) needs to post stellar second-quarter earnings report to avert a further implosion of the stock. After initially rising to highs of $373 a share, the stock has come down tumbling to below the $300 share mark.

Tesla reports on August 1, 2018, having achieved a significant milestone in the production of 5,000 Model 3s, a week. However, the company is expected to report a net loss of $3.49 a share. Investors will focus their attention on the number of Model 3 units the company delivered in the quarter.

The expectation is high that the company did deliver 10,000 more units in Q2 compared to Q1. Revenue, on the other hand, is expected at $4 billion on the sale of the additional cars. Attention will also be on the company’s expenditure, a headwind that has clobbered the company for years preventing it from turning in a profit.

Q3 Guidance will also have to come overboard to prevent further slide of the stock. Given that the company has hit 5,000 a week production milestone investors expect the company to provide a pathway to profitability in Q3.

Caterpillar Inc. (NYSE: CAT)

Caterpillar Inc. (NYSE: CAT) will report its earnings report on July 30, 2018, before the earnings bell. After delivering a 120% year-over-year improvement in earnings in Q1, expectations are high that the trajectory continued in Q2.  Investors expect the company to report a 22% increase in total sales, projected at $13.8 billion.

Earnings per share, on the other hand, should tickle in at $2.66 a share, representing a 79% year-over-year increase. The earnings beat is what Caterpillar needs if the stock is to bounce back after underperforming the market in the first half of the year.

Loews Corporation (NYSE: L)

Just like Caterpillar, Loews Corporation (NYSE: L) is scheduled to report on July 30, 2018, before the market opens. In Q1, the company reported a 14% surprise earnings beat. Expectations are high that the company beat estimates in Q2 on the strong performance of its CAN financials and Loews Hotels units Consensus estimates indicate the company could post earnings of 0.73 cents a share representing 3.9% year-over-year decrease.

AK Steel Holding Corporation (NYSE: AKS)

AK Steel Holding Corporation (NYSE: AKS) will report earnings on July 30, 2018, with expectations high that the company will beat estimates. The stock has already broken out of a critical resistance level in the wake of other steel companies reporting stellar quarterly financial results.

The consensus forecast for the quarter is that the company will report earnings of 23 cents a share, an increase from 19 cents a share reported a year earlier. Steel stocks are expected to continue powering high, the sector has emerged as a bright spot in the economy.

Procter & Gamble Co (NYSE: PG)

The owner of blockbuster brands like Gillett Razors and Pampers Diapers, Procter & Gamble Co (NYSE: PG) is to report its fourth-quarter and full year financial results on July 31, 2018. At the start of the year, the company forecasted organic sales gains of 2.5% up from an initial estimate of 2%.

For the current quarter, Wall Street expects the company to report revenues of $16.55 billion. Full-year sales, on the other hand, are expected at $66.87 billion. Investors will also want to hear what the company is doing as part of its cost-cutting drive. Cost cuts are expected to allow the company to venture into other growth areas.

Pfizer Inc. (NYSE: PFE)

Pharmaceutical giant Pfizer Inc. (NYSE: PFE) is to report its second-quarter earnings report before market open on July 31, 2018. The focus will be on whether the company maintained the positive earning streak in the quarter, after a positive earnings surprise of 4.05% in Q1.

Consensus estimates indicate the company could report EPS of $0.74 a share on revenues of $13.31 billion.

DowDuPont Inc. (NYSE: DWDP)

DowDuPont Inc. (NYSE: DWDP) is to report its recent quarterly earnings on August 2, 2018, before market open. Last year same quarter, the company reported earnings per share of $1.12, beating analyst’s expectations of $1.1 share. For the current quarter, investors expect the company to post EPS of $1.3 a share. Revenues, on the other hand, should come in at $23.6 billion.

Baidu Inc. (ADR) (NASDAQ: BIDU)

Investor’s sentiments are high on Chinese internet giant Baidu Inc. (ADR) (NASDAQ: BIDU) posting impressive quarterly results after the market close on July 31, 2018. Consensus estimates indicate the company could post a 30.2% year over year increase in sales that could come in at $4.01 billion. For the full year, the search giant is expected to post sales of $16.09 billion. Analysts expect the company to issue a sales guidance of $19.46 billion for next year.

Sprint Corp (NYSE: S)

Sprint Corp (NYSE: S) is to report its Q1 financial results on July 30, 2018. Wall Street expects the company to report earnings per share of $0.01 a share compared to $0.05 reported last year. Total revenue is poised to decline 0.7% year over year to $8.1 billion.

Teva Pharmaceutical Industries Ltd (ADR) ADR (NYSE: TEVA)

Teva Pharmaceutical Industries Ltd (ADR) ADR (NYSE: TEVA) is to report on its recent quarterly earnings report before the market opens on August 2nd, 2018. The expectation is high that the company will post sales of $4.75 billion down from $5.69 billion reported last year. Earnings per share, on the other hand, should come in at $0.67 a share.

Shake Shack Inc. (NYSE: SHAK)

Shake Shack Inc. (NYSE: SHAK) is expected to post sales of $110.20 million for the recent quarter after market close on August 2, 2018. Earnings per share are expected at $0.17 a share. The company is also expected to maintain full-year sales estimates of $451.32 million.

Kraft Heinz Co (NASDAQ: KHC)

Kraft Heinz Co (NASDAQ: KHC) will report earnings before markets open on August 3, 2018. Investors expect the company to post EPS of $0.92 a share up from $0.89 a share reported in the previous quarter. Revenue, on the other hand, is expected at $6.59 billion.