Stocks managed a modest ascent on Friday, capping off a turbulent week, much of which was driven by concerns over the Federal Reserve's tightening plans. The market's volatility kept investors on their toes, seemingly prolonging the tug-of-war between economic optimism and the likelihood of more rate hikes.
The market's jitters were sparked by recent economic indicators, including lower-than-expected initial jobless claims which stoked more fears of a faster-paced rate hike trajectory, leaving investors to ponder the Federal Reserve's next moves. As of Friday, the trading crowd was pricing in an anticipated pause in September, followed by a greater-than-40% probability of a rate hike in November. It remains to be seen what the Fed will do. Still, Friday’s market gains were enough to break a three-day losing streak.
The Dow Jones Industrial Average rose 75.86 points, or 0.22%, to end Friday's session at 34,576.59. Among the Dow’s notable gainers were Apple (AAPL), which after enduring a two-day losing streak, clawed back with a modest 0.4% uptick, while Salesforce (CRM) and Microsoft (MSFT) both managed 1% gains. The S&P 500 added 6.35 points, or 0.14%, finishing at 4,457.49. It wasn’t as broad of a rally, however. Of the eleven S&P sectors, eight finished higher, driven by a 1% rise in Energy which rose the coattails of oil prices surging upward.
Thanks to the aforementioned Apple and Microsoft, the tech-heavy Nasdaq Composite gained 12.69 points, or 0.09%, to close at 13,761.53. As we tally the weekly scorecard, it's evident that the bears had their moments. The S&P 500 and Nasdaq gave up 1.3% and 1.9%, respectively, in their first weekly setback in three outings. The declines were due in part to weaknesses in the likes of Tesla (TSLA) and Nvidia (NVDA), which both suffered amid more rate hike fears. The Dow, while not as bruised, closed the week approximately 0.8% lower.
The main question heading into the week is whether this recent choppiness will continue. On the bright side, recent economic data, including lower-than-expected initial jobless claims, continues to be strong. But the market continues to grapple with the “good news can be bad news” scenario. Too much good economic news means the Fed could maintain its hawkish stance towards interest rates, which is bad news for stocks.
However, weak economic data can pressure the consumer, which means bad news for corporations. Given the resilience we have witnessed in the economy and labor data, staying invested in the market is the best way to counter inflation. On the earnings front, here are the stocks I’ll be watching this week.
Oracle (ORCL) - Reports after the close, Monday, Sep. 11
Wall Street expects Oracle to earn $1.14 per share on revenue of $12.46 billion. This compares to the year-ago quarter when earnings came to $1.03 per share on revenue of $11.45 billion.
What to watch: In the midst of the recent pullback in technology stocks, Oracle's stock continues to outperform, rising close to 10% over the past week while the S&P 500 index has fallen 1.2%. The stock has soared an impressive 55% year-to-date, a stark contrast to the more modest 16% rise witnessed in the S&P 500 index. If we cast our gaze further back, Oracle's trajectory becomes even more pronounced, with a staggering 70% surge over the past year, dwarfing the S&P 500's relatively subdued 12% uptick.
The reasons behind Oracle's popularity? The company’s cloud capabilities has begun to accelerate. Barclays analyst Raimo Lenschow recently upgraded the IT giant, citing a "multi-year growth story.” Lenschow boosted his rating on Oracle to Overweight from Equal-weight, while raising his price target to $150 from $126. "We see a multi-year opportunity for solid growth at high margins driven by an ongoing positive mix effect of better [software-as-a-service and Oracle Cloud Infrastructure] outweighing the lower growth parts of the business," Lenschow wrote in an investor note. "[Oracle Cloud Infrastructure], partly fueled by emerging AI workloads, will be key to the database and overall story.”
The management’s strategy to shift of Oracle's products - such as Fusion, NetSuite and OCI - into the cloud has helped filed growth in the past several quarters. For the stock to keep rising on Monday, the company will need to deliver a top and bottom line beat, along with strong guidance.
Adobe (ADBE) - Reports after the close, Thursday, Sep. 14
Wall Street expects Adobe to earn $3.98 per share on revenue of $4.88 billion. This compares to the year-ago quarter when earnings came to $3.40 per share on revenue of $4.43 billion.
What to watch: With a 63% surge in the past six months, Adobe ranks highly in the basket of software stocks that have ignited a fervent surge fueled by the momentum of artificial intelligence. Adobe's shares have rose 67% year to date, crushing the 16% rise in the S&P 500 index. And there’s more gains to come, according to Mizuho Securities analyst Gregg Moskowitz who last week boosted his price target to $630 from $520, while raising his rating on Adobe to Buy from Neutral.
From current levels of around $560, Moskowitz’s new price target assumes additional premiums of close to 15%. To justify his bullishness, Moskowitz noted Adobe’s accelerated web traffic which he expects will boost Adobe’s digital media segment annual recurring revenue in both the third and fourth quarters. Moskowitz also noted that the early reception to Firefly, Adobe's generative artificial intelligence product, has been "stronger than anticipated" and could result in it being a "significant" growth driver. This supports Wells Fargo’s position that Adobe is as well-positioned to benefit from early enterprise adoption given its content specialties. Adobe's management continues to take the strategic approach to the position the company for long-term success. While the stock is no longer cheap, Adobe's new leadership position in AI will keep the shares from getting any cheaper.
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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