Last night’s strong reports from Alphabet (GOOGL) and Microsoft (MSFT) seemed to snap the market out of its second-quarter malaise, as big tech helped the major indices put together a strong week of gains.

The NASDAQ soared 2.03% (or approximately 316 points) today to 15,927.90 and the S&P increased 1.02% to 5099.96, leaving them with weekly advances of 4.2% and 2.7%, respectively. In other words, we went from not having a positive week in the second quarter to these indices just putting together their best weeks of 2024.

It's pretty clear what sparked this rally. We got better-than-expected results on Thursday night from GOOGL and MSFT, which sent shares higher by 10.2% and 1.8%, respectively, on Friday. Such reports (and, perhaps more importantly, the positive reaction to them) reinforce investors’ hopes that the earnings season can improve the market’s inflation-obsessed mood.

“It is hard to find any weakness in the Microsoft and Alphabet reports, and the market’s reaction to these two reports shows that investors agree with that assessment. The Alphabet report appears to reassure investors that it has a credible AI strategy in place and may not be that far behind Microsoft in this critical race,” said Director of Research Sheraz Mian in his latest earnings article: Does Mag 7 Leadership Remain Intact?

The Dow has much less tech exposure than its counterparts, so it’s understandable that it would underperform. But the index still rose 0.40% (or around 153 points) today to 38,239.66 for a weekly advance of 0.7%.

Most impressively, we got this rally even though the Personal Consumption Expenditures (PCE) index showed that inflation is still stubbornly sticking around. The annual gains for headline and core were 2.7% and 2.8%, respectively, which were each 0.1% more than expected. The monthly advances for both were in-line at 0.3%.

“Still, the numbers weren’t any worse than the most recent CPI and PPI numbers, allowing for a bit of a relief rally today,” said Dave Bartosiak in Surprise Trader. “The big story is going to be earnings reports versus inflation data. We’ve already seen an uptick in the inflationary numbers while earnings reports have been pretty good. I think this back and forth is likely to continue.”

If you thought a week with four “Mag 7” earnings reports was crazy, then what’s about to come is downright insane. Amid over 1200 reports being released next week, we’ll be getting two more “magnificent” names when Amazon (AMZN) and Apple (AAPL) go to the plate on Tuesday and Thursday, respectively.  

We’ve also got a Fed meeting on deck with a decision and comments from Chair Jerome Powell on Wednesday. Fortunately for the wits of investors, we pretty much know that the Committee will stay put again. The CME Fedwatch Tool has the odds for such an outcome at over 97%. (By the way, odds for a cut don’t exceed 50% until the September 17/18 meeting, though that will change as we get more data.)

Speaking of data, next week is full of turn-of-the-month numbers. The main event will be nonfarm payrolls on Friday, but we’re also in store for ADP employment and ISM Manufacturing on Wednesday and ISM Services on Friday.

Today's Portfolio Highlights:

Technology Innovators: With more than half of the world’s population predicted to be obese over the next decade; it's no wonder that biotech powerhouses like Eli Lilly (LLY) and Novo Nordisk (NVO) are working on weight loss treatments. But Andrew added a smaller company on Friday with a lot more potential for investors. Viking Therapeutics (VKTX) develops therapies for metabolic and endocrine disorders, and it scored a big win earlier this year by receiving a Phase 2 trial for a new injectable weight loss drug. Best of all, VKTX’s offering worked quicker and with fewer side effects than its larger counterparts. And pretty soon the company will be releasing results for an oral drug, which would be “a windfall opportunity for investors” if successful. And let’s not forget that VKTX is much more of a takeover target. With the stock testing its 50-day moving average, the editor thought this was a great time to add VKTX. Read the full write-up for more.

Surprise Trader: Smart homeowners know how important a good home service plan can be, which probably explains why Frontdoor (FTDR) has been beating the Zacks Consensus Estimate since August 2022. In fact, this Zacks Rank #2 (Buy) topped expectations by 900% in its most recent report. FTDR provides home service plans that help customers protect and maintain their homes from costly and unplanned breakdowns of essential home systems and appliances. And now the stock has an Earnings ESP of 8.6% for its next release before the bell on Thursday. Best of all, FTDR has Dave’s “favorite divergence” with earnings estimates rising while the stock pulls back. The editor added FTDR today with a 12.5% allocation and also exited AZZ (AZZ) and FirstCash (FCFS). Read the full write-up for more on today’s action.

Large-Cap Trader: A pair of impressive quarterly results gave this portfolio two double-digit winners on Friday. The big performer was ResMed (RMD), which jumped 18.9% today after a solid fiscal third quarter report that included an earnings surprise of nearly 11%. This maker of medical products for respiratory disorders had revenue of $1.2 billion, which topped the Zacks Consensus Estimate by 1.4%. The other top mover was, of course, Alphabet (GOOGL), which advanced 10.2% after last night’s heralded report that included an EPS surprise of over 26% on revenues that also topped expectations on double-digit growth. The “Mag 7” name also announced its first dividend. It’s no surprise that GOOGL and RMD are the two best performers in the portfolio with advances of 22.5% and 17.5%, respectively, since inception.

TAZR Trader: With AI powerhouse and market superstar NVIDIA (NVDA) climbing over 6% on Friday; this portfolio had one of the top performers today with GraniteShares 2X Long NVDA Daily ETF (NVDL) gaining 12.2%. The fund seeks daily investment results, before fees and expenses, of two times the daily percentage change NVDA. Kevin added NVDL on Monday and it has since jumped to the second spot in the service with a gain of more than 23%. And you can probably guess what’s the best performer. Yup, it’s NVDA with a surge of over 600% since being added in October 2022.

Insider Trader: After reporting a beat-and-raise quarter last night, shares of Skechers (SKX) surged in extended trading and had Tracey musing “let’s see if it can hold it tomorrow”. Well, the affordable shoe company sure did “hold it” by gaining 11.2% on Friday to become one of the top performers among all ZU names. SKX topped the Zacks Consensus Estimate by nearly 21% while revenues of $2.25 billion beat our expectations by 3%. Even better, the company raised its full year earnings guidance to between $3.95 and $4.10 from the prior guidance of $3.65 to $3.85. SKX is now up more than 24% in the service since its inception in November.

Have a Great Weekend!
Jim Giaquinto