Thanks to strong earnings results from several blue-chip companies and banks, the stock market has regained levels near record highs. But despite strong September retail sales and the strong start to third-quarter earnings, there’s still some concern about flagging consumer sentiment.

Evidenced by Friday’s strong close for the Dow Jones Industrial Average which reclaimed the 35,000 threshold, investors are seemingly feeling more confident that the upcoming earnings results from the most influential companies in the S&P 500 will be supportive of higher valuations. The results received so far have been encouraging. But investors are looking for more supportive reasons to anticipate a sustained rebound in the third and fourth quarters.

We continue to talk about the importance of not only the upcoming corporate earnings, but also the implication of the guidance that will be provided. So far, both have come in above expectations. The Dow on Friday Dow rose 382.20 points to close at 35,294.76, gaining 1.09%. The Blue Chip index was driven by increases in Apple (AAPL), Qualcomm (QCOM), IBM (IBM), Microsoft (MSFT) and Intel (INTC), which offset declines in McDonald’s (MCD) and Walgreens (WBA).

The S&P 500 index closed 33.11 points higher to 4,471.37, while the tech-heavy Nasdaq Composite Index added 73.91 points, gaining 0.50% to close at 14,897.34. Aside from the aforementioned Apple and Microsoft, Nasdaq’s rally was driven by gains in, among others, Tesla (TSLA), Alphabet (GOOG , GOOGL) and Amazon (AMZN). Part of the bullishness also stemmed from the report on September retail sales data that showed a rise of 0.7%, higher than the 0.2% decline that was forecasted. This number suggests that Americans are spending at a level that can sustain an economic recovery from the pandemic. This is even as consumers are paying more to do so due to the rise in inflation.

For the week, the Nasdaq was the biggest winner, rising about 2.2%. The S&P 500 climbed 2%, while the Dow added 1.1%. This was a stunning turnaround after what has been a tumultuous few weeks, sparked by concerns over global growth and rising bond yields. From Tuesday through Friday it was clear that “buying the dip” remains the working strategy for investors who have the patience to ride the cycle. The main question heading into the week is whether this rally can continue, particularly as Big Tech comes into focus.

As far as earnings go, here are the stocks to keep an eye on this week.

Summit Rock Advisors

Netflix (NFLX) – Reports after the close, Tuesday, Oct. 19

Wall Street expects Netflix to earn $2.56 per share on revenue of $7.48 billion. This compares to the year-ago quarter when earnings were $1.74 per share on $6.38 billion in revenue.

What to watch: Shares of Netflix have gone on an impressive run, rising some 10% over the past month, driven by bullish commentary from analysts about the company’s slate of programming and growth potential. With 209 million paid subscribers, Netflix is by far the industry’s king of streaming. But will it stay that way? With the emergence of rival streamers such as Disney+ (DIS), HBO Max (T) and Apple TV+ (AAPL), the industry has gotten crowded. And it’s poised to be more even crowded in the next few years given the rate at which media companies are creating content for their own streaming platforms. Despite this, Netflix has figured out ways to maintain its status. And it appears Wall Street believes this is sustainable. Last week, citing the company’s international penetration and increased subscriber growth, analysts at Truist raised the price target to $690 from $600. The analysts noted Netflix’s recent strong content, such as “Squid Game,” which became a global phenomenon. Nonetheless, Netflix stock is not cheap anymore. On Tuesday the management team will need to guide in a bullish manner to keep the momentum.

IBM (IBM) – Reports after the close, Wednesday, Oct. 20

Wall Street expects IBM to earn $2.50 per share on revenue of $17.77 billion. This compares to the year-ago quarter when earning were $2.58 per share on $17.72 billion in revenue.

What to watch: IBM has always been a great stock to buy for dividend investors, but has the company become more appealing to growth investors as well? The tech giant has struggled to grow revenues over the past decade and has not benefited in the massive economic expansion that saw cloud leaders such as Amazon (AMZN) and Microsoft (MSFT) produce double-digit revenue gains. But as it transitions away from its legacy businesses, IBM’s turnaround has seemingly begun. The company’s cloud ambitions have shown some promise in recent quarters and has provided ample revenue strength to support a higher multiple, thanks to the Red Hat acquisition which modernized its cloud business. The company is now forecasted to grow revenues by high single digits annually over the next 5 years. The stock has rallied from about $115 back in January to over $150. While there is some near-term resistance, it appears the market is giving IBM more credit for the recent traction the company has made towards the cloud. But for the the shares to maintain their uptrend, the company will need to demonstrate continued operating leverage and revenue growth acceleration.

Tesla (TSLA) – Reports after the close, Wednesday, Oct. 20

Wall Street expects Tesla to earn $1.50 per share on revenue of $13.5 billion. This compares to the year-ago quarter when earnings came to 76 cents per share on revenue of $8.77 billion.

What to watch: Tesla shares have skyrocketed as much as 50% in the past five months, rising from around $555 in May to a recent high of $835. While the stock is still about 10% below is 52-week high of $900, that rate of volatility is par for the course for Tesla. Investors want to know how much higher the stock can go. Some of the recent bullishness stems from the fact that Tesla just reported its highest vehicle sales in China in two years. Last week Tesla announced it sold 56,006 China-made vehicles in September, marking a 25.5% increase from August’s sales of 44,264 vehicles. The rise in vehicle sales maintains the strong trend which included record global vehicle deliveries of 241,300 in the third quarter. Investors are eager to learn how much profits this growth has produced. Updates on Semi and the Cybertruck timelines, as well as building progress for Texas plant and the one being built in Germany, will also determine the speed at which Tesla stock can drive higher from here.

Intel (INTC) – Reports after the close, Thursday, Oct. 21

Wall Street expects Intel to earn $1.11 per share on revenue of $18.24 billion. This compares to the year-ago quarter when earnings were $1.11 per share on revenue of $18.33 billion.

What to watch: Which version of Intel will the market see on Thursday? Shares of the chip giant has fallen 16% over the past six months, compared to 7% rise in the S&P 500 index. The stock is down about 15% since the company reported its Q1 results in April. And its Q2 results, reported in July, did little to excite investors about the long-term growth prospects. While Intel has surpassed the Street’s revenue estimates in ten straight quarters, investors have grown frustrated about the company’s lack of progress in key business segments, particularly the datacenter group and client computing group which accounts for a respective 30% and 50% of the company’s quarterly revenue. Weaknesses in these areas for Intel have been magnified by the successes and market share gains from rivals AMD (AMD) and Nvidia (NVDA) in several important chip developments. While CEO Pat Gelsinger has done a decent job changing the negative narrative surrounding the company, Intel on Thursday must prove the naysayers wrong, while selling the upside potential of the many growth initiatives it can still achieve.

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

Summit Rock Advisors

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