The anticipated Fed Pivot might now be on the table based on new inflation data that suggests more work might need to be done to curb the cost of living. While some economists have agreed that the U.S. economy has already reached “peak inflation,” investors are nonetheless have taken a wait-and-see attitude. But the “risk-on” shown in stocks this week suggests a year-end rally may be in the cards.

In continuation with last week’s theme, stocks rallied on Friday, recovering the ground lost in Thursday’s session as treasury yields cooled off. The Dow Jones Industrial Average added 391.16 points, or 1.15%, to close at 34,282.10. Leading the blue-chip gains were, among others, Apple (AAPL), Microsoft (MSFT), Intel (INTC) and IBM (IBM), which offset declines in Walt Disney (DIS). The S&P 500 climbed 67.89 points, or 1.56%, ending the day at 4,415.24 with all eleven sectors of the S&P 500 ending the day in positive Friday.

Among the S&P 500 sectors, Technology was the top out-performer, rising 2.6% thanks to Microsoft’s 2.5% rise, sending the tech giant at an all-time highs during the session. In that vein, investors have been looking for reasons to jump head-first back into the market to scoop up the mega-cap tech names, Friday was that opportunity. With strong gains in the aforementioned Apple and the likes of Alphabet (GOOG , GOOGL), Amazon (AMZN), Meta Platforms (META) and Tesla (TSLA), the tech-heavy Nasdaq Composite rose 2.05%, adding 276.66 points to close at 13,798.11.

The weaker-than-expected economic data continue to be the catalysts for the rally. The gains on Friday were enough to power all the three major averages to another weekly gain. Of the three, the Nasdaq was the strongest gainer, rising roughly 2.4% during the five-day session. The S&P 500 was second, rising 1.3%, while the Dow added about 0.7%. It still appears as if the market is anticipating a less-hawkish Fed, with investors betting on a less than 10% chance that the Fed will hike interest rates at its next policy meeting in December.

It remains to be seen what implications this week’s economic data will mean for the Federal Reserve’s rate-hiking cycle, but what we see could have an even greater impact on rate expectations. Meanwhile, earnings reports delivered so far have been encouraging, revealing the expected slowdown in profits have been better than feared. So far, of the roughly of 84% of S&P 500 companies have provided their results, 80% have topped analysts estimates. Will the trend continue this week? Here are the stocks to watch.

Home Depot (HD) – Reports before the open, Tuesday, Nov. 14

Wall Street expects Home Depot to earn $3.58 per share on revenue of $35.66 billion. This compares to the year-ago quarter when earnings were $4.24 per share on revenue of $38.87 billion.

What to watch: Interest rate hiking cycles have historically hampered home improvement stocks, and that appears to be the case so far in 2023 as Home Depot stock has underperformed the market for much of the year. The stock has fallen more than 8% year to date, compare with a 13.5% rise in the S&P 500 index. Over the past year, HD stock has risen just 1%, while the S&P 500 has risen 16%. The company has been adversely impacted by soaring interest rates which have helped to slow the housing market. Meanwhile, higher input costs and weakening consumer demand has caused margin erosion within its business.

That said, there is still confidence in the housing market, which has held up relatively well, despite the rising mortgage rates. The situation is not expected to significantly improve in the upcoming quarter, according to RBC Capital Markets analyst Steven Shemesh, who initiated coverage on the stock with a Sector Perform rating. While the analyst believes in the long-term story of Home Depot, he cautions that various macro factors such as high rates, persistent inflation, and the shift from goods to services will adversely impact Home Depot’s earnings in the near term. This is where investors will need to have more clarity around interest rates and what the Fed is likely to do in the next few quarters.

On Tuesday, investors will be keen on the company’s overall revenue total and any trends in growth. This includes both comparable-store sales and total revenue generated across its various product categories. While the company has established a strong track record for beating estimates, the company’s guidance on Tuesday will also be the main driver of the stock as it will indicate where the management believes the housing market and consumer spending will be in the next several quarters.

Palo Alto Networks (PANW) – Reports after the close, Wednesday, Nov. 15

Wall Street expects Palo Alto to earn $1.16 per share on revenue of $1.84 billion. This compares to the year-ago quarter when earnings came to 83 cents per share on revenue of $1.55 billion.

What to watch: When it comes to growing revenues and profits among the cybersecurity space, you would be hard-pressed to find a stronger-performing name than Palo Alto Networks. The cybersecurity specialist has consistently outperformed. Offering a diversified suite of specialized security products, Palo Alto continues to benefit from its leadership position in key cybersecurity categories, and thus is expected deliver more growth on both the top and bottom lines when it reports results for the quarter that ended September.

Investors are expecting another strong quarter, evidenced by the stock’s impressive performance. Their shares have risen 74% year to date, including 25% over the past six months, compared to a year-to-date rise of 13% for the S&P 500 index. But it’s still not time to take profits, according to Morgan Stanley analyst Hamza Fodderwala. Citing recently quarterly checks, Fodderwala noted there is durable demand for Palo Alto’s services which he expects will result not only in a double-beat for the company, but also raise guidance.

“Our latest checks largely support a positive view, with partners citing durable demand as customers consolidate on the broader PANW platform.” The analyst also pointed to Palo Alto’s transformation which he says has “driven a higher mix of recurring Next-Gen Security sales and should help mitigate slower topline coming off a firewall refresh cycle over the last couple years.” The company on Thursday will be tasked with demonstrating it can still deliver more upside despite the stock’s strong year-to-date performance.

Alibaba (BABA) – Reports before the open, Thursday, Nov. 16

Wall Street expects Alibaba to earn $2.12 per share on revenue of $30.79 billion. This compares to the year-ago quarter when earnings came to $1.81 per share on revenue of $28.95 billion.

What to watch: Investors’ love and hate relationship with Alibaba is seemingly never-ending. Once the darling of Wall Street, the Chinese tech giant still has a lot of work to do to get back in market’s good graces. But it does appear that BABA has begun to gain favor where it matters. Currently trading at around $82, BABA stock has risen more than 40% from its low of $58. That’s the good news. However, since reaching its 52-week high of $121, the stock has lost 32% of its value. The shares are down 6% year to date, still trailing the 13% rise in the S&P 500 index. Also with the stock falling 70% in three years, compared to a 22% rise in the S&P 500 index, BABA still has a lot of ground to make up.

The company is poised to catch up amid China’s more relaxed regulatory scrutiny of big tech platforms, which is something that has impacted BABA’s operations for the past three years. The company is pivoting from its conglomerate status and recently announced plans to break its operation into six individual segments, including splitting off its cloud division into a separate company. There continues to be tons of uncertainty with the latter initiative given that former CEO Daniel Zhang who was tagged to lead the cloud unit resigned from that post in September.

Nevertheless, there is reason for optimism amid the restructuring. Another potential catalyst for BABA could be Alibaba’s new AI tools, putting BABA at the forefront the main providers of key AI technologies in China. The launch of AI tools is another way for BABA to leverage its market leadership position within the cloud segment. On Thursday the stock may reverse its decline if Alibaba can deliver a top- and bottom-line beat and provide confident outlook for the next quarter and full year, especially given that it is facing much more favorable year-over-year comparisons.

Walmart (WMT) – Reports before the open, Thursday, Nov. 16

Wall Street expects Walmart to earn $1.41 per share on revenue of $149.82 billion. This compares to the year-ago quarter when earnings came to $1.50 per share on revenue of $151.47 billion.

What to watch: Shares of Walmart continue to be one of the better performers in retail. Walmart has gone on an impressive run over the past month, rising more than 5%, compared with a 0.27 rise in the S&P 500 index. Having recovered from earlier losses in the year, the stock is now up almost 16% year to date, besting the 13% risen in the S&P 500 index. Walmart’s stock performance in noteworthy given the challenges of rising inflation. While the Federal Reserve has put forth a valiant effort combat the rising cost of living, Walmart continues to feel the effects of higher input costs and other operating overhead, evidenced by the expected year-over-year decline in quarterly earnings.

During the quarter, investors will be looking for signs of steady revenue growth, particularly in core segments like groceries and e-commerce. Any shifts in consumer behavior, including online shopping trends, will be of interest. While e-commerce is vital, the performance of Walmart’s physical stores, particularly same-store sales figures and foot traffic trends, will help gauge the health of its brick-and-mortar presence. Meanwhile, analysts will be looking for any signs suggesting that logistics and operating margins issues are in the rearview mirror. These metrics will reveal how well Walmart is managing costs and optimizing its operations. Upside guidance for the holiday quarter and full year, along with positive commentary about its market share growth, will also be closely-watched.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Source: Nasdaq

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