The Streak Is Broken. After spending most of the day below the break-even line, stocks mounted a comeback but fell short of ending Friday in the black. All three major indexes closed with slight losses, breaking the five-day positive streak since last Friday. Still, this is the third straight week that saw sharp increase in stock prices. In today’s After the Bell, we…
- marvel at the great performance of 2019 two weeks into the new year;
- look into the latest inflation data released today;
- and explain why the upcoming earnings season might be a good chance to hunt for deals.
Good Start to The Year
Market ended the day with little movement on Friday after a five-day steak of positive returns. The S&P 500 is now hitting a “wall of resistance”–the 2,600 level–where selling pressure is expected to emerge.
For the first seven trading days of 2019, the S&P 500 has a gain of nearly 3.6%, the best since 2003. Since 1950, whenever the S&P 500 rose more than 1.1% after the first five days of the year, each of those years–except for 2018–the index closed higher 23 out of 24 times, according to data from LPL Financial strategist Ryan Detrick. A good start seems to be strongly indicative of a year of gains.
The latest inflation data released today comes largely in check. The headline consumer price index (CPI) edged lower 0.1% in December compared to the previous month. The over-40% plunge in crude-oil prices since October has contributed a big part to that drop. Taking out food and energy prices, the core CPI is actually 0.2% higher, but held steady at 2.2% for the fourth time in the past five months.
“The Fed will take this as further proof that price pressures are building more slowly than some have feared based on the strong growth of late and tight labour market,” writes James McCann, senior global economist at Aberdeen Standard Investments, on Friday, “It certainly seems to justify the Fed’s message about being more patient on rate increases.”
Companies will begin reporting fourth-quarter earnings next week, and trade progress, strong job numbers and a more patient Fed has shifted the market tone as of late. Investors should use this as an opportunity to hunt for some beaten-down deals that could get a boost from strong earnings reports, according to Julian Emanuel, chief equity and derivatives strategist at BTIG.
Some companies have topped earnings and revenue expectations every quarter of the Trump presidency, but are still trading 20% below their 52-week highs. Those firms, says Emanuel, are likely to beat once again this quarter and reward investors with positive price gains. These include companies such as Northrop Grumman (ticker: NOC), Morgan Stanley (MS) , E*Trade Financial (ETFC), and Ralph Lauren (RL).
On the other hand, companies that have disappointed on both the top and bottom lines more than twice since 2017, and have stock declines of less than 10% from 2018 peaks could be set to underperform. These include companies such as Walt Disney (DIS), AutoZone (AZO), Duke Energy (DUK), and Hershey (HSY).
The Hot Stock
GM rose $2.45, or 7.1%, to $37.18.
The auto maker expects to earn between $6.50 and $7 a share in 2019, well above the $5.84 consensus EPS estimate. It also said that its full-year 2018 results should come in ahead of previous guidance.
In the past 12 months, GM is down 15.9%.
The Biggest Loser
Activision Blizzard lost $4.82, or 9.4%, to $46.54.
The videogame publisher said late Thursday that it will transfer publishing rights of its Destiny franchise to its developer Bungie. The game never truly lived up to expectations, but the vacuum leaves investors worried about what can take its place in Activision’s lineup.
In the past 12 months, Activision is down 32.8%.
Write to Evie Liu at [email protected]