2/9-6/9 | Stock Market Recap and Next Week's Top Picks

This week, the U.S. labour market was under intense scrutiny, revealing signs of weakening. The August nonfarm jobs report highlighted a softening trend, with the unemployment rate nudging down from 4.3% to 4.2%, but with fewer jobs added than expected and several downward revisions to previous months. This contributed to a market downturn as September commenced, with the S&P 500 declining about 4% from recent highs, though it remains up over 13% year-to-date.

Technology Sector Turbulence

United States Steel (NYSE) suffered a steep decline of over 19% following political and regulatory challenges to a major acquisition.
Nvidia (NASDAQ) saw a 4.8% drop amidst antitrust investigations, affecting investor confidence despite no official subpoena being reported.
Broadcom (NASDAQ) faced a sharp 15% drop after projecting weaker-than-expected results for Q4, overshadowing a strong Q3 performance where revenue rose 47% year-over-year.

Financial Sector Fluctuations

Goldman Sachs (NYSE) experienced a minor drop of 0.56%, lagging behind the broader finance sector’s gains. With an earnings release looming, the firm is predicted to post significant year-over-year EPS growth, reflecting robust financial health despite current market trepidations.

Pharmaceuticals Sector Developments

Lupin saw its stock price surge, reaching a 52-week high, bolstered by FDA approval for its generic version of Myrbetriq®. This approval could tap into a market with substantial annual sales, underscoring the company's strong positioning within the pharmaceutical sector.

Commodities Sector Challenges

The broader commodities market faced pressures with crude oil prices hitting new yearly lows, reflecting global demand concerns, particularly fears surrounding economic slowdowns in major markets like China.

Market Overview and Economic Outlook

Investors are now focusing on the Federal Reserve's forthcoming decisions, particularly the potential for interest rate cuts. The prospect of a 0.50% rate reduction has gained traction due to the softening labour market and subdued inflation pressures. Markets have adopted a more defensive stance in response to these economic uncertainties, with traditionally safer sectors like consumer staples and utilities outperforming in early September.

The bond markets have seen Treasury yields decline, anticipating the Fed's rate cuts to support economic growth. Meanwhile, the upcoming U.S. elections and the typically volatile months of September and October could induce further market fluctuations.

Weekly Market Statistics

Dow Jones Industrial Average: Closed at 40,345, down 2.9% for the week, up 7.0% YTD.
S&P 500 Index: Closed at 5,408, down 4.2% for the week, up 13.4% YTD.
NASDAQ: Closed at 16,691, down 5.8% for the week, up 11.2% YTD.
10-yr Treasury Yield: Ended at 3.72%, a decrease of 0.2% for the week.
Oil Prices: Closed at $68.18 per barrel, down 7.3% for the week.

As the market navigates through these turbulent times, strategic investment decisions focused on long-term goals will be essential. Investors are encouraged to stay informed and consider any market corrections as opportunities to rebalance portfolios, diversify investments, and secure quality assets at potentially better prices. The Fed's upcoming actions could play a pivotal role in shaping market dynamics in the near term.

Important Events This Week

Next week promises a series of significant corporate events and financial reports that are

poised to impact the market. Highlights include:

Earnings Reports: GameStop, Academy Sports and Outdoors, Dave & Buster's, Microsoft, Manchester United, Adobe, and Kroger are among the notable companies scheduled to release their financial results. Volatility is expected, particularly for GameStop and Petco Health and Wellness, where substantial share price swings are anticipated post-earnings.
Corporate Events: Apple is set to grab headlines with its "It's Glowtime" event, expected to unveil the iPhone 16 alongside new AI features. This event coincides with several other major happenings, including the preliminary injunction hearing in the FTC's attempt to block Tapestry's acquisition of Capri Holdings, and the beginning of the antitrust trial against Google.
Conferences and Meetings: The Goldman Sachs Communacopia & Technology Conference will feature presentations from tech giants like Nvidia and Salesforce, along with insights from leaders of AT&T, Etsy, and Robinhood Markets. Additionally, Microsoft will host a significant cybersecurity conference to address recent software vulnerabilities.
Economic Indicators: Key economic reports scheduled for release include the CPI and PPI data, which will provide the latest insights into inflation trends. These indicators will be closely watched as they can influence the Federal Reserve's upcoming decisions on interest rates.
Sector-Specific Developments: The healthcare sector will be in focus towards the end of the week with the European Society for Medical Oncology Meeting, where major pharmaceutical companies like Merck and AstraZeneca will present new data. Additionally, the financial sector will monitor the European Central Bank's expected rate cut announcement.

These events collectively signify a bustling week ahead with potential market-moving implications across various sectors, providing both challenges and opportunities for investors.

Must Watch Stocks Week - Our Thoughts

Netflix (NFLX) - Buy

Netflix is approaching a buy point of 697.49, with the potential to act up to 732.36, based on MarketSurge analysis. The stock is finding support at the 21-day exponential moving average, and its relative strength line is near record highs, indicating bullish momentum. It boasts a strong IBD Composite Rating of 98, with earnings performance also at a robust 98. Earnings have surged by an average of 597% over the past three quarters. EPS growth is projected at 59% in 2024, slowing to 20% in 2025.

Revenue growth has been accelerating for four consecutive quarters. The stock's institutional support is rising, evidenced by its Accumulation/Distribution Rating of B. Netflix's strategic initiatives, like curbing password sharing and introducing an ad-supported service tier, have positively impacted the stock.

From its beginnings as a DVD-by-mail service, Netflix has evolved into a global leader in digital streaming, producing acclaimed content like "Stranger Things" and "The Crown". It's expanding into live events, notably inking a $5 billion deal to stream WWE's "Raw" and NFL games on Christmas Day in the coming years. This expansion into live content is expected to enhance its appeal to advertisers.

Currently, Netflix leads the competitive Leisure-Movies & Related industry group, positioning it as a compelling buy at its current price.

DaVita (DVA) - Buy

DaVita's stock is currently positioned as a strong buy after breaking through a flat base entry point of 147.93, with a permissible buy zone extending up to 155.33 according to MarketSurge analysis. The stock maintains support at the 21-day exponential moving average and holds well above the crucial 50-day line.

The company has shown strong, albeit not perfect, performance, reflected in an IBD Composite Rating of 91 out of 99. This year, DaVita's stock has seen a significant rise of approximately 44%.

In terms of earnings, DaVita boasts a robust EPS Rating of 93 out of 99, with earnings growth averaging about 54% over the past three quarters. This growth trajectory surpasses what many investors look for in stocks following the IBD Methodology. Wall Street anticipates continued earnings improvements, with EPS expected to rise by 21% in 2024, although the growth rate is projected to moderate to 16% in 2025.

DaVita, a leader in operating dialysis centers for chronic kidney disease treatment, is currently ranked second in the competitive Medical-Outpatient/Home Care group. Despite past pressures from the potential impacts of weight-loss drugs on dialysis demand, recent studies indicate these treatments are unlikely to replace the need for dialysis services.

Notably, 48% of DVA stock is held by institutional investors, including a significant 43% stake owned by Warren Buffett's Berkshire Hathaway. This high level of institutional backing underscores the stock's robust market position and investor confidence.

W.R. Berkley (WRB) - Buy

W.R. Berkley stock shines in the insurance sector, currently trading within a 5% buy zone after forming a cup-with-handle base, indicating a strong buy point at 58.09. This second-stage pattern suggests the stock is still in an early phase of potential growth, enhanced by its recent performance where it regained all moving averages, notably receiving support around the 50-day line.

The stock is also trading above an earlier entry point of 56.66, with a possible aggressive entry up to 59.49, though this carries higher risk. The relative strength line is improving, supporting the stock’s breakout attempt, although it is yet to surpass its 12-month highs.

In terms of performance metrics, W.R. Berkley holds a robust IBD Composite Rating of 96 out of 99. Its earnings performance is particularly strong, with an EPS Rating of 99. The stock stands out for its price performance, ranking in the top 16% over the past year. Recent quarters have seen earnings growth averaging 40%, well above the 25% benchmark set by IBD investment principles.

The company recently reported a 37% increase in earnings to $1.04 per share, exceeding analyst expectations, alongside an 11% revenue increase to $3.3 billion. Looking forward, earnings growth is expected to continue, with a 26% increase projected for 2024, though a slowdown to 4% growth is anticipated in 2025.

Institutional activity shows a modest net buying, reflected in an Accumulation/Distribution Rating of C+. Overall, institutions own 52% of W.R. Berkley shares, underscoring strong institutional backing and confidence in the firm’s ongoing and future performance.

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This weekly recap provides a snapshot of the stock market's key events and trends. As always, investors should stay informed and consider how these developments might impact their portfolios in the weeks to come. Please note that I am not a financial advisor and always do your own research before investing. Also, only invest what you can afford to comfortably lose! Thanks for reading this blog, and happy investing!