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Week Ahead: Resuming a Bear Market, or Time to Buy the Dip?
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Last week was the worst week of the year so far for the stock market. Investors came into February with high expectations after an extremely strong start to 2023, but so far it looks like it may have been a fake out.
A quick look at the Nasdaq chart shows us that the market has been trading in a wide range for the last 10 months. After starting out strong in February, and quickly climbing to new highs year to date, the market has reversed aggressively, printing a shooting star candle. A shooting star is basically a reversal signal and indicates that bears are back in control of the market.
With inflation remaining stubbornly high, and the path of Fed policy still somewhat uncertain, there are some near-term headwinds for the broad market.
Alternatively, employment and economic growth continue to be robust, so if the market can trade above last month’s highs, it should invalidate the bearish trend.
Image Source: TradingView
Weekly Preview
The week of February 27 is going to be on the lighter side for economic data releases, although there are still some significant earnings reports to come out. Earnings from Costco (COST - Free Report) , Target (TGT - Free Report) , and Occidental Petroleum (OXY - Free Report) , are all highly anticipated, and carry with them valuable information on where the broader economy stands.
Monday:
Monday, after the market close, will bring a few major earnings reports. Workday (WDAY - Free Report) , and Zoom Video (ZM - Free Report) , two former growth darlings that experienced huge drawdowns in 2022 will provide some color on where growth stocks are heading.
Like many other growth stocks, ZM and WDAY have led the market higher this year. ZM was up as much as 25% YTD but has since sold off some of those gains. WDAY is up nearly 10% YTD.
ZM currently boasts a Zacks Rank #2 (Buy), indicating upward trending earnings revisions, which is encouraging for the battered software communications company. Even after a strong start to the year ZM is still more than -80% below its all time high.
Image Source: Zacks Investment Research
Occidental Petroleum is one of Warren Buffett’s newest large holdings, and indicates his bullish view on oil prices, and the energy industry. Although oil prices have sold off significantly since the summer highs, OXY stock has remained quite strong.
OXY has traded weaker than the industry, and currently holds a Zacks Rank #3 (Hold), indicating flat earnings revisions trend.
Image Source: Zacks Investment Research
Notable Earnings: IIPR, GRPN, HEI
Tuesday
Tuesday morning there will be some economic data. We will get numbers on retail and wholesale inventories, and consumer confidence.
Several major earnings reports will be released, most notably from Target, and AutoZone (AZO - Free Report) . TGT will provide some very valuable color on how consumers are faring in this uncertain economic environment. Retail sales have so far been mixed, although many have had estimates lowered significantly coming into the earnings season. TGT currently has a Zacks Rank #3 (Hold), indicating flat earnings revision trend.
AZO’s report should also be interesting, indicating how consumers are deciding to spend on auto related purchases. AZO currently has a Zacks Rank #3 (Hold), indicating a flat earnings revision trend. However, over the last 90 days AZO EPS has been revised from $20.14 per share to $21.33.
AutoZone has been a phenomenal stock over the last 20 years, trouncing the returns of the broad market.
On Wednesday, for the economic data front, there will be releases on ISM manufacturing, construction spending, and auto sales. Additionally, the outspoken Minneapolis Fed President Neel Kashkari will be speaking. Rhetoric from Federal Reserve policy makers has never been more significant. Market participants have been hanging on every last word over the last few weeks in an effort to get any additional information on where interest rates will go.
There are a number of significant earnings coming out on Wednesday, but there is one stock I am particularly keen on. Abercrombie and Fitch (ANF - Free Report) , which seems to have faded from relevance after dominating trends a decade ago is making a quiet comeback.
A refresh of its clothing line has brought it up to date with current young adult fashion trends, and earnings expectations are looking up as well. ANF currently holds a Zacks Rank #1 (Strong Buy), indicating upward trending earnings revisions.
Abercrombie and Fitch stock is off to a strong start this year, rallying 27% YTD.
Thursday morning brings some more significant data, with Initial Jobless Claims numbers coming out at 8:30 am EST. The last report showed 192,000 claims for the period and estimates for this report are projecting 197,000. Too few jobless claims will indicate further tightening in the labor market, and potentially push the Fed to more hawkish policy. If the number shows in-line or high jobless claims, it will show that policy makers may be on the correct path.
After having a subdued score for several months Costco has jumped higher in the Zacks Rank. Currently boasting a Zacks Rank of #2 (Buy), indicates its earnings revisions are trending higher. With its unique business model, principled management, and consumer focused business COST is as high quality of a business as there is.
Quality comes at a premium though and Costco trades at a rich multiple of 34x one-year forward earnings. This is well above the market average, but below its five-year median of 35x. COST is expecting current quarter sales of $56 billion, a 7% YoY increase. Earnings are expected to come in at $3.21 EPS for the quarter, a 10% YoY increase.
Earnings and data will slow down significantly on Friday, with no major U.S. corporations reporting. ISM manufacturing numbers in the morning will be it for data, and speeches from the Federal Reserve’s Logan and Bowman will round up the week.
It should be another active week, with the market sitting on something of a precipice. Retail earnings, growth stocks, employment data, and Fed member rhetoric all will play a major factor in how the market acts this week. It can’t be understated how critical Fed policy and rhetoric is for the market going forward.
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Week Ahead: Resuming a Bear Market, or Time to Buy the Dip?
Last week was the worst week of the year so far for the stock market. Investors came into February with high expectations after an extremely strong start to 2023, but so far it looks like it may have been a fake out.
A quick look at the Nasdaq chart shows us that the market has been trading in a wide range for the last 10 months. After starting out strong in February, and quickly climbing to new highs year to date, the market has reversed aggressively, printing a shooting star candle. A shooting star is basically a reversal signal and indicates that bears are back in control of the market.
With inflation remaining stubbornly high, and the path of Fed policy still somewhat uncertain, there are some near-term headwinds for the broad market.
Alternatively, employment and economic growth continue to be robust, so if the market can trade above last month’s highs, it should invalidate the bearish trend.
Image Source: TradingView
Weekly Preview
The week of February 27 is going to be on the lighter side for economic data releases, although there are still some significant earnings reports to come out. Earnings from Costco (COST - Free Report) , Target (TGT - Free Report) , and Occidental Petroleum (OXY - Free Report) , are all highly anticipated, and carry with them valuable information on where the broader economy stands.
Monday:
Monday, after the market close, will bring a few major earnings reports. Workday (WDAY - Free Report) , and Zoom Video (ZM - Free Report) , two former growth darlings that experienced huge drawdowns in 2022 will provide some color on where growth stocks are heading.
Like many other growth stocks, ZM and WDAY have led the market higher this year. ZM was up as much as 25% YTD but has since sold off some of those gains. WDAY is up nearly 10% YTD.
ZM currently boasts a Zacks Rank #2 (Buy), indicating upward trending earnings revisions, which is encouraging for the battered software communications company. Even after a strong start to the year ZM is still more than -80% below its all time high.
Image Source: Zacks Investment Research
Occidental Petroleum is one of Warren Buffett’s newest large holdings, and indicates his bullish view on oil prices, and the energy industry. Although oil prices have sold off significantly since the summer highs, OXY stock has remained quite strong.
OXY has traded weaker than the industry, and currently holds a Zacks Rank #3 (Hold), indicating flat earnings revisions trend.
Image Source: Zacks Investment Research
Notable Earnings: IIPR, GRPN, HEI
Tuesday
Tuesday morning there will be some economic data. We will get numbers on retail and wholesale inventories, and consumer confidence.
Several major earnings reports will be released, most notably from Target, and AutoZone (AZO - Free Report) . TGT will provide some very valuable color on how consumers are faring in this uncertain economic environment. Retail sales have so far been mixed, although many have had estimates lowered significantly coming into the earnings season. TGT currently has a Zacks Rank #3 (Hold), indicating flat earnings revision trend.
AZO’s report should also be interesting, indicating how consumers are deciding to spend on auto related purchases. AZO currently has a Zacks Rank #3 (Hold), indicating a flat earnings revision trend. However, over the last 90 days AZO EPS has been revised from $20.14 per share to $21.33.
AutoZone has been a phenomenal stock over the last 20 years, trouncing the returns of the broad market.
Image Source: Zacks Investment Research
Notable Earnings: ROST, HPQ, DDD, CRON, AAP, NVAX, URBN, FSLR, MNST, CPNG, RIVN, RKT
Wednesday
On Wednesday, for the economic data front, there will be releases on ISM manufacturing, construction spending, and auto sales. Additionally, the outspoken Minneapolis Fed President Neel Kashkari will be speaking. Rhetoric from Federal Reserve policy makers has never been more significant. Market participants have been hanging on every last word over the last few weeks in an effort to get any additional information on where interest rates will go.
There are a number of significant earnings coming out on Wednesday, but there is one stock I am particularly keen on. Abercrombie and Fitch (ANF - Free Report) , which seems to have faded from relevance after dominating trends a decade ago is making a quiet comeback.
A refresh of its clothing line has brought it up to date with current young adult fashion trends, and earnings expectations are looking up as well. ANF currently holds a Zacks Rank #1 (Strong Buy), indicating upward trending earnings revisions.
Abercrombie and Fitch stock is off to a strong start this year, rallying 27% YTD.
Image Source: Zacks Investment Research
Notable Earnings: CRM, LOW, NIO, SPLK, OKTA, DLTR, PLUG, SNOW,
Thursday
Thursday morning brings some more significant data, with Initial Jobless Claims numbers coming out at 8:30 am EST. The last report showed 192,000 claims for the period and estimates for this report are projecting 197,000. Too few jobless claims will indicate further tightening in the labor market, and potentially push the Fed to more hawkish policy. If the number shows in-line or high jobless claims, it will show that policy makers may be on the correct path.
After having a subdued score for several months Costco has jumped higher in the Zacks Rank. Currently boasting a Zacks Rank of #2 (Buy), indicates its earnings revisions are trending higher. With its unique business model, principled management, and consumer focused business COST is as high quality of a business as there is.
Quality comes at a premium though and Costco trades at a rich multiple of 34x one-year forward earnings. This is well above the market average, but below its five-year median of 35x. COST is expecting current quarter sales of $56 billion, a 7% YoY increase. Earnings are expected to come in at $3.21 EPS for the quarter, a 10% YoY increase.
Image Source: Zacks Investment Research
Notable Earnings: AVGO, M, BBY, MRVL, KR, DELL, BURL, JWN, BUD, ZS, HRL, BILI, AI, PPRUY, CNSWF
Friday
Earnings and data will slow down significantly on Friday, with no major U.S. corporations reporting. ISM manufacturing numbers in the morning will be it for data, and speeches from the Federal Reserve’s Logan and Bowman will round up the week.
It should be another active week, with the market sitting on something of a precipice. Retail earnings, growth stocks, employment data, and Fed member rhetoric all will play a major factor in how the market acts this week. It can’t be understated how critical Fed policy and rhetoric is for the market going forward.