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Stocks Slip This Week on Earnings, Fed Uncertainties

The major indices entered this week at all-time highs, but exit with their first weekly losses since late June as the momentum couldn’t be sustained at the start of earnings season.  

The S&P and NASDAQ were each off by about 1.2%, while the Dow slipped around 0.7%. This marks the first negative week of July.  

Earnings season has been all right so far with most companies beating lowered expectations. However, results have been mixed and everyone remains cautious about slowing global growth and trade issues.

That makes the Fed’s rate decision at the end of the month all the more important. But the closer we get to the event, the more investors worry about the outcome.

We’re either getting a quarter-point cut, a half-point cut or no cut at all. Dovish comments from the New York Fed President yesterday had expectations for a half-point cut spiking, though there have been attempts to walk his comments back a bit.

As a result, stocks have to deal with uncertainties for both earnings season and the Fed. And it certainly doesn’t help that Iran seized a couple oil tankers in the Strait of Hormuz.

Stocks were higher to start Friday’s session due in large part to software giant Microsoft, which reached a new high after its strong report yesterday. But things cooled off extensively as the day progressed. Shares of MSFT could only manage a gain of 0.15% by the close.

The NASDAQ had the sharpest decline of 0.74% (or about 60 points) to 8146.49, while the S&P peeked back above 3,000 momentarily before sliding 0.62% by the close to 2976.61.

The Dow was up by more than 100 points at its best, but still slipped by 0.25% (or about 68 points) to 27,154.20.

The market will have plenty of opportunities to return to all-time highs or pull back even further next week, as earnings season kicks into a higher gear. It’ll be one of the busier weeks of reporting and will include most of the remaining FAANGs like Amazon, Facebook and Alphabet. We'll also be getting some important economic data, such as Q2 GDP on Friday.

Today's Portfolio Highlights: 

Surprise Trader: The last time Lockheed Martin (LMT) missed quarterly earnings expectations was all the way back in late 2017. The most recent report included a positive surprise of nearly 40%. Dave thinks this global security & aerospace giant will continue its outperformance when reporting again on Tuesday July 23 before the bell. The editor added LMT on Friday with a 12.5% allocation. Read the full write-up for more.  

Technology Innovators: Having been public for less than four months, Zoom Video Communications (ZM) doesn’t have much of a history for Brian to study. Nevertheless, the editor believes this stock has “the makings of being a winner”. ZM is a Zacks Rank #2 (Buy) that provides video and web conferencing services. More specifically, it unifies cloud video conferencing, online meetings, group messaging and a software-defined video conference room solution into one platform. Brian likes the potential in this space. He also appreciates what brokerage analysts are saying about ZM, including a few price targets of around $100 or more.  Therefore, the stock was added on Friday. Read the full write-up for more. 

Healthcare Innovators: When the portfolio bought Cigna (CI) several months ago, the insurance company was at a deep discount. Now it looks like the stock wants to fill the gap left from it runup, so Kevin saw a good opportunity to sell CI for a positive return of approximately 20%. He’d be open to adding it again if the deep value returns. The editor also sold Johnson & Johnson (JNJ) for a gain of 3%. 

Have a Great Weekend,
Jim Giaquinto

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