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S&P, NASDAQ Snap 3-Day Skids Amid CPI and Earnings Reports

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The market had a lot of stuff to process on Wednesday from hot-button issues like inflation and the tapering timeline, but the S&P and NASDAQ still managed to snap their three-day losing streaks. Meanwhile, the country’s largest bank provided a solid start to earnings season.  

The CPI report was the big news of the day, especially as global supply chain issues exacerbate the inflation problem and threaten to limit the economic recovery. Consumer prices jumped 0.4% in September and surged 5.4% year-over-year.

These results are abnormally high, but they’re only slightly worse than expected by about 0.1% for each time frame. So we were spared the super spicy number that could have wreaked havoc in an already skittish market. In fact, one of our editors called this a “goldilocks” result.  

Meanwhile, the Fed minutes from the September meeting were released, which showed the Committee getting more comfortable with tapering. In fact, it could begin as soon as mid-November and end in mid-2022. As with the CPI number, there was really no eye-bulging surprises here. Investors already knew that inflation is on the rise (but hopefully transitory) and that a taper is right around the corner.

As a result, the market fought back from some early sluggishness. The S&P rose 0.30% to 4363.80, while the NASDAQ was the big winner with an advance of 0.73% (or about 105 points) to 14,571.63. Both of these indices ended three-day skids that began on Friday with that disappointing jobs report.

And then there’s the Dow. The index recovered from an approximately 250-point deficit early Wednesday, but doesn’t get to join its counterparts on the plus side. It ended the day at 34,377.81, which means it was down by less than a point! Technically, it’s now on a four-day losing streak.

The CPI and Fed minutes overshadowed the start of earnings season on Wednesday, but we’re just getting started with these reports. And it was a pretty good start with JPMorgan (JPM) announcing a solid quarter that included a positive earnings surprise of nearly 25%. As you might expect though, shares of the banking giant were down 2.6% in the session.

Our Director of Research Sheraz Mian made JPM a focus in his latest Earnings Trends piece entitled “Solid Start to Q3 Earnings Season”.

Tomorrow’s major reports among the financial giants include Bank of America (BAC), Wells Fargo (WFC), Morgan Stanley (MS) and Citigroup (C) all before the market open. Other noteworthy reports include Taiwan Semiconductor (TSM) and UnitedHealth (UNH), among several others.

In addition to the earnings reports, Thursday will also include the weekly jobless claims number and the PPI report. So get ready for another day of inflation and earnings.

Today's Portfolio Highlights:

Home Run Investor: Energy prices are soaring these days, so Brian thought this was a good time to add exposure to the oil & gas E&P space. On Wednesday, the portfolio picked up Northern Oil and Gas (NOG), a company based in Minnesota that should capitalize on plunging winter temperatures in the Midwest. NOG topped the Zacks Consensus Estimate in three of the past four quarters... and still managed an average surprise of 19% in that time. In other words, the beats are big and the earnings estimates are rising, which explains its status as a Zacks Rank #2 (Buy). The complete commentary has a lot more on the addition of NOG, as well as the subtractions of Stride (LRN) and Euroseas (ESEA).    

Surprise Trader: Sometimes the lower expectations of a Zacks Rank #3 (Hold) can “catch the market off guard with a good earnings number”, especially if it has a positive Earnings ESP. That’s what Dave was thinking when he added Heartland Express (HTLD) on Wednesday. The company is part of the Transportation – Truck space, which is in the Top 10% of the Zacks Industry Rank. HTLD doesn’t announce the date of its earnings report, but it usually comes around the second week of October. Therefore, the editor is expecting it very soon. The stock has come down considerably off the 52-week highs and is now near support in this $16 area. Dave added HTLD today with a 12.5% allocation, while also selling Costco (COST) after failing to get a post earnings drift higher. The complete commentary has more on all of today’s moves.  

Stocks Under $10: Given the surge in oil of late, Brian wouldn’t be surprised if we see $100 per barrel or more soon. If that were to happen, it would be bad news for the portfolio’s transportation names. Therefore, the editor eliminated the service’s exposure to the space on Wednesday by selling Diana Shipping (DSX), Corporacion America Airports S.A. (CAAP) and Pangaea Logistics (PANL). DSX was the big winner with a 14% return in about four months, while CAAP brought a little over 5% in just under six months.

Value Investor: It was another good session for InMode (INMD), as this radio-frequency medical technologies company gained 13.8% on Wednesday after providing a third-quarter outlook that was ahead of Wall Street expectations. INMD has actually been on a tear ever since Tracey added the name back in April 2020. The stock is currently the best performer in the portfolio by a wide margin with a surge of more than 600% since inception! INMD is also one of the biggest winners over the past 30 days by rising 39.4%.

All the Best,
Jim Giaquinto

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