Has the multi-month rally in stocks that recently pushed the S&P 500 index to 14-month highs, and ushered in a new bull market, already over? The answer to that would be resounding "no." But with stocks falling in Friday, and all three major averages booking weekly losses, investors have begun to wonder whether the market has finally run out of steam.
After posting its worst weekly decline since April, the Nasdaq Composite Index, which declined 1% on Friday, snapped an eight-week winning streak. For that matter, both the Dow Jones Industrial Average and the S&P 500 index snapped winning streaks of their own. This week’s price action has prompted up the bears who have waged the “AI-hype” argument on multiple occasions, insisting that the valuation concerns has caught up to the bulls. For that I’ll say, "not so fast."
It’s hard to argue that given that all three major averages up strongly over the past three months and on a year-to-date basis, the bulls are still firmly in control. This week is likely just a temporary pause ahead of the second quarter earnings season. On Friday the Dow shed 219.28 points, or 0.65% to close at 33,727.43. Among the Dow’s notable decliners were Apple (AAPL), Salesforce (CRM), Microsoft (MSFT) and IBM (IBM), which offset gains in Intel (INTC).
The S&P 500 gave up 33.56 points, or 0.77%, finishing at 4,348.33. All eleven sectors in the S&P 500 ended in negative territory Friday, led by Utilities and Consumer Discretionary. The tech-heavy Nasdaq Composite lost 138.09 points, or 1.01%, to close at 13,492.52. The Nasdaq was pressured by, among others, shares of Nvidia (NVDA) which ended down 1.9%.
For the week, the Nasdaq lost 1.2%, while the Dow and S&P 500 were both lower by 1%. It’s worth noting that, amid the pullback this week, all three averages have hit some key technical resistance levels. It’s also possible that investors were discouraged by some hawkish statements made by Federal Reserve Chairman Jerome Powell who this past week delivered his testimony on the semi-annual monetary policy report to lawmakers.
Powell reiterated expectations for more rate hikes this year, though investors are betting that the rate hikes have been completed. Although inflation levels have moderated over the past several months, they remain elevated when compared to two years ago. In other words, the Fed watch will continue until there is a more definitive metric to suggests that the Fed will put an indefinite pause on its hike cycle.
As far as earnings go, here are the stocks I’ll be watching this week.
Micron (MU) - Reports after the close, Wednesday, Jun. 28
Wall Street expects Micron to lose $1.57 per share on revenue of $3.67 billion. This compares to the year-ago quarter when earnings came to $2.59 per share on revenue of $8.64 billion.
What to watch: The improved prospects for memory chips have driven a rebound in Micron stock, which has risen some 14% over the past three months, compared to its sector median increase of 7%. Not only has the stock risen 34% in six months, the shares are up 32.5% year to date, besting the 14% rise in the S&P 500 index. Micron has benefited not only from improved prospects in the memory chip business, but also from the excitement of generative AI, which could help bolster its earnings recovery. Micron’s memory chip business is highly cyclical. Aside from weak memory chip demand and falling prices, the company has also dealt with supply chain headwinds in a memory market which were already highly volatile to match fluctuations with demand. The memory supply chain is expected to bottom out in the second half of 2023, which will lead into a cyclical recovery in early 2024. This explains why the stock has done so well in recent months. The management, meanwhile, has made the best of a bad situation by trimming operating expenses to maintain margins and preserve the company’s balance sheet. These cost cuts have helped Micron achieve its profitability goals as it waits for demand and price stability to return. On Wednesday these are among the topics the company will need to discuss, along with issuing positive guidance that instill confidence that memory pricing can rebound in the quarters ahead.
BlackBerry (BB) - Reports after the close, Wednesday, Jun. 28
Wall Street expects BlackBerry to lose 5 cents per share on revenue of $160.35 million. This compares to the year-ago quarter loss of 5 cents per share on revenue of $168 million.
What to watch: BlackBerry shares have rebounded impressively so far this year, rising 52% year date, compared to a 14% rise in the S&P 500 index. After falling roughly 50% in 2022, the cybersecurity specialist is looking at ways to revive revenue growth and regain investor confidence. The company earlier this last month talked optimistically about various initiatives to achieve adjusted profitability by the end of next year. BlackBerry expects revenue growth to be in the range of 6.6% to 12.2%, targeting revenue range for fiscal 2024 of $665 million to $700 million. That range equates to a three-year compound annual growth rate of 12-15%. Having operated at a loss over the past few years, the company also forecasted "significant improvements" in its adjusted EPS loss and cash flow usage in 2024, saying it expects to not only each a profit by the fourth quarter, but also starting in fiscal 2025 it expect to deliver positive full-year adjusted earnings and cash flow. It’s no surprise that the stock has reacted favorably. After suffering its tenth straight quarter of declining revenue, investors have waited patiently for a reason to still believe in this once-prominent tech giant to return to overall revenue growth. Nevertheless, the management aims to hit revenue of $1.2 billion in fiscal 2027, believing it has an enormous opportunity to service customers in need of device security as the number of connected devices continue to grow. With BlackBerry stock still down 53% over the past five years, the market on Wednesday will want to see more evidence of life than just company forward-looking statements.
Nike (NKE) - Reports after the close, Thursday, Jun. 29
Wall Street expects Nike to earn 67 cents per share on revenue of $12.59 billion. This compares to the year-ago quarter when earnings came to 90 cents per share on revenue of $12.23 billion.
What to watch: Is it time to chase Nike stock? Its shares have broadly underperformed the market, falling 5.6% year to date, compared to a 14% rise in the S&P 500 index. When expanding that horizon to one year and three years, Nike has risen just 5.28% and 11%, respectively, compared to 16% and 40% returns by the S&P 500 index in the same time span. And things won’t get better anytime soon, according to analysts at Morgan Stanley who is advising caution on Nike’s upcoming forward guidance: “Recent [North America] & Europe sportswear channel checks make it clear that demand for mass sportswear has potentially slowed, leaving a sizable inventory glut across the industry that is currently being promoted away." Still, citing a slight recovery in China as an offsetting factor for Nike, the analyst maintained an Overweight rating and a $130 price target on Nike stock. The company stands to benefit from the re-opening in China which has relaxed some of its Covid restrictions to spur economic growth. But in the near term, there’s still the fear of revenue and margin pressure which could cause a miss in Q4 profits. On Thursday the shares will react positively if the company can delivery a top and bottom line beat along with positive guidance.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Richard Saintvilus
After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.
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