We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Markets Stage Comeback with Second Rally Attempt Underway: Stocks to Watch
Read MoreHide Full Article
Stocks appear to be staging a reversal on Wednesday, reclaiming more ground after Tuesday’s first rally attempt. The gains come on the heels of a three-day rout that took out a substantial portion of this year’s market gains.
A sharp rise in the Japanese Yen against the US dollar ignited an unwinding of what’s referred to as a “carry trade,” whereby speculators who borrowed money at Japan’s near-zero interest rates to buy US risk assets rushed to liquidate their holdings.
In the years leading up to the 2008 financial crisis, there was a lot of money tied up in Yen carry trades. The bigger issue was that a lot of that money was invested in risky assets such as subprime mortgages. One of the outcomes from the Great Recession were tighter risk controls, preventing excessive levels taken by institutions.
The Bank of Japan alleviated concerns yesterday, as Deputy Governor Shinichi Uchida pledged to refrain from hiking rates further if markets are unstable.
Volatility Index Retreats from Multi-Year High
At the height of the recent selling, volatility rose to levels not seen in multiple years. The volatility (VIX) index hit an intraday high on Monday of 65.7; the last time we saw the VIX at this level was during the initial COVID-19 scare in early 2020.
The VIX closed Tuesday at 27.71, a drop of more than 50% from Monday’s intraday peak. Based on Monday’s closing price, the VIX fell 41% from its high (65.73) to its close (38.57), which marked the largest percentage move lower in a single day.
Image Source: StockCharts
In early trading on Wednesday, the “fear gauge” was down another 18% to 22.75. During bull markets, spikes in the VIX have represented good buying opportunities. The steep decline could be a sign that the worst of this correction is behind us, but we need to embrace the inherent unpredictability of the stock market.
This speaks to the notion of not getting stuck on a story or idea of what we think will happen. It’s important to remember that we don’t know what’s going to happen; when we truly embrace this, we allow ourselves to take advantage of timely opportunities.
Rate-Cut Odds Shift Following Market Sell-Off
Earlier in the week, Chicago Fed President Austan Goolsbee stated that central bank policymakers will respond to any weakness in the economy, indicating that rates may be too restrictive. He stressed Fed mandates including maximizing employment, stabilizing prices, and maintaining financial stability.
“If the conditions collectively start coming in like that on the through line, if there’s deterioration on any of those parts, we’re going to fix it.”
Calls for an emergency Fed cut were abundant on Monday given the global selloff in stocks. Market participants are now pricing in three rate cuts by the end of the year.
The first cut is all but assured at the Fed’s next policy meeting in September, with current odds standing at 100%. Furthermore, odds of a 50-basis point cut next month jumped to 64%.
Second-Quarter Earnings Season Still Alive and Well
We remain in the midst of the Q2 earnings season. While it’s certainly quieter than last week, there were a handful of significant announcements Wednesday morning.
Media giant Disney (DIS - Free Report) reported third-quarter fiscal adjusted earnings of $1.39/share, which beat the Zacks Consensus Estimate by 15.8%. The bottom line surged 35% year-over-year. Revenues of $23.15 billion also beat the consensus mark and increased 3.7% from the prior-year period.
Image Source: StockCharts
Shares of The Walt Disney Company were trading about 3% lower after issuing mixed guidance and calling out a late quarter slowdown in the theme park business. Management believes a hesitant consumer will persist for the next few quarters.
Meanwhile, Shopify (SHOP - Free Report) stock soared more than 20% on Wednesday after the cloud-based commerce platform provider delivered a beat-and-raise report. Second-quarter earnings of $0.26/share marked a 30% beat versus the $0.20/share estimate and jumped 114.3% versus the year-ago period. Revenues of $2.05 billion rose 21% and were ahead of the $2.01 billion median projection.
Image Source: StockCharts
The Canadian e-commerce site, which assists businesses in selling products and services, has been taking advantage of the artificial intelligence theme by rolling out related features. The company forecasted Q3 revenues well above analysts’ estimates, signaling confidence in the current operating environment.
Final Thoughts
Volatility remains elevated, but we are beginning to see some evidence of buying pressure at these levels. It’s not a time to get too aggressive in terms of new trade initiations, but investors may want to consider nibbling at rate-sensitive areas like small-caps.
Following a rough start to the month of August, market participants will remain focused on earnings results as well as next week’s inflation reports. Make sure you’re taking advantage of all that Zacks has to offer as we head deeper into the second half of the year.
See More Zacks Research for These Tickers
Normally $25 each - click below to receive one report FREE:
Image: Bigstock
Markets Stage Comeback with Second Rally Attempt Underway: Stocks to Watch
Stocks appear to be staging a reversal on Wednesday, reclaiming more ground after Tuesday’s first rally attempt. The gains come on the heels of a three-day rout that took out a substantial portion of this year’s market gains.
A sharp rise in the Japanese Yen against the US dollar ignited an unwinding of what’s referred to as a “carry trade,” whereby speculators who borrowed money at Japan’s near-zero interest rates to buy US risk assets rushed to liquidate their holdings.
In the years leading up to the 2008 financial crisis, there was a lot of money tied up in Yen carry trades. The bigger issue was that a lot of that money was invested in risky assets such as subprime mortgages. One of the outcomes from the Great Recession were tighter risk controls, preventing excessive levels taken by institutions.
The Bank of Japan alleviated concerns yesterday, as Deputy Governor Shinichi Uchida pledged to refrain from hiking rates further if markets are unstable.
Volatility Index Retreats from Multi-Year High
At the height of the recent selling, volatility rose to levels not seen in multiple years. The volatility (VIX) index hit an intraday high on Monday of 65.7; the last time we saw the VIX at this level was during the initial COVID-19 scare in early 2020.
The VIX closed Tuesday at 27.71, a drop of more than 50% from Monday’s intraday peak. Based on Monday’s closing price, the VIX fell 41% from its high (65.73) to its close (38.57), which marked the largest percentage move lower in a single day.
Image Source: StockCharts
In early trading on Wednesday, the “fear gauge” was down another 18% to 22.75. During bull markets, spikes in the VIX have represented good buying opportunities. The steep decline could be a sign that the worst of this correction is behind us, but we need to embrace the inherent unpredictability of the stock market.
This speaks to the notion of not getting stuck on a story or idea of what we think will happen. It’s important to remember that we don’t know what’s going to happen; when we truly embrace this, we allow ourselves to take advantage of timely opportunities.
Rate-Cut Odds Shift Following Market Sell-Off
Earlier in the week, Chicago Fed President Austan Goolsbee stated that central bank policymakers will respond to any weakness in the economy, indicating that rates may be too restrictive. He stressed Fed mandates including maximizing employment, stabilizing prices, and maintaining financial stability.
“If the conditions collectively start coming in like that on the through line, if there’s deterioration on any of those parts, we’re going to fix it.”
Calls for an emergency Fed cut were abundant on Monday given the global selloff in stocks. Market participants are now pricing in three rate cuts by the end of the year.
The first cut is all but assured at the Fed’s next policy meeting in September, with current odds standing at 100%. Furthermore, odds of a 50-basis point cut next month jumped to 64%.
Second-Quarter Earnings Season Still Alive and Well
We remain in the midst of the Q2 earnings season. While it’s certainly quieter than last week, there were a handful of significant announcements Wednesday morning.
Media giant Disney (DIS - Free Report) reported third-quarter fiscal adjusted earnings of $1.39/share, which beat the Zacks Consensus Estimate by 15.8%. The bottom line surged 35% year-over-year. Revenues of $23.15 billion also beat the consensus mark and increased 3.7% from the prior-year period.
Image Source: StockCharts
Shares of The Walt Disney Company were trading about 3% lower after issuing mixed guidance and calling out a late quarter slowdown in the theme park business. Management believes a hesitant consumer will persist for the next few quarters.
Meanwhile, Shopify (SHOP - Free Report) stock soared more than 20% on Wednesday after the cloud-based commerce platform provider delivered a beat-and-raise report. Second-quarter earnings of $0.26/share marked a 30% beat versus the $0.20/share estimate and jumped 114.3% versus the year-ago period. Revenues of $2.05 billion rose 21% and were ahead of the $2.01 billion median projection.
Image Source: StockCharts
The Canadian e-commerce site, which assists businesses in selling products and services, has been taking advantage of the artificial intelligence theme by rolling out related features. The company forecasted Q3 revenues well above analysts’ estimates, signaling confidence in the current operating environment.
Final Thoughts
Volatility remains elevated, but we are beginning to see some evidence of buying pressure at these levels. It’s not a time to get too aggressive in terms of new trade initiations, but investors may want to consider nibbling at rate-sensitive areas like small-caps.
Following a rough start to the month of August, market participants will remain focused on earnings results as well as next week’s inflation reports. Make sure you’re taking advantage of all that Zacks has to offer as we head deeper into the second half of the year.