A stronger-than-expected jobs report couldn’t keep stocks from surging Friday after fears of regional bank failures subsided. In fact, shares of the SPDR S&P Regional Banking ETF (KRE) rebounded impressively, bouncing off Thursday’s lows to gain more than 6% on Friday.
What’s more, better-than-expected quarterly earnings from Apple (AAPL), which sparked a rally in mega-cap tech, suggests the Federal Reserve’s 25 basis-point interest rate hike on Wednesday could be the peak of the increase. In other words, the choppiness the market has witnessed, where stocks seem to lack direction and conviction, could finally be over.
Stocks rallied on Friday, with both the the Dow Jones Industrial Average and the S&P 500 booking strong gains, adding 546.64 points, or 1.65%, to close at 33,674.38. Leading the gains on the Dow were, among others, Apple (AAPL), Microsoft (MSFT), Intel (INTC) and IBM (IBM). The Dow was also powered by healthcare giants UnitedHealth (UNH), Amgen (AMGN) and Johnson & Johnson (JNJ). The S&P 500 climbed 1.85%, ending the day at 4,136.25, while the tech-heavy Nasdaq Composite rose 2.25%, adding 275.56 points to close at 12,235.41.
Investors have been looking for reasons to jump head-first back into the market, particularly to scoop up some mega-cap tech FAANG names such as Amazon (AMZN), Meta Platforms (META) and Google parent Alphabet (GOOG , GOOGL) which were punished in 2022 by high interest rates. Notably, stocks rose despite a strong April jobs report, showing the economy added 253,000 jobs, much higher than the 180,000 new jobs economists expected. Despite Friday’s rally, both the Dow (down 1.24% for the week) and the S&P 500 (down 0.8% for the week) logged their worst week since March.
Despite the weekly decline in the broader averages, it's encouraging that the labor market remains strong, with the unemployment rate dropping to 3.4% compared to last month’s 3.5%. However, the market’s focus on the Fed’s policy decisions is understandable. According to the CME FedWatch tool, the market believes the period of interest rate increases are over, with the market placing a 93% probability that there will be no hike at the central bank's June meeting. This remains to be seen. Will the stock rally continue into next week driven by stronger earnings? Here are the stocks to watch.
Lucid Group (LCID) - Reports after the close, Monday, May 8
Wall Street expects Lucid to post a per-share loss of 41 cents on revenue of $209.88 million. This compares to the year-ago quarter loss of 37 cents per share on revenue of $57.67 million.
What to watch: The battle for electric vehicle supremacy is heating up. Heading into the quarterly results, one of the main questions investors want to know is whether luxury EV maker Lucid has lasting power. The market also wants to see whether the company's decision to enter the EV pricing war, sparked by Tesla (TSLA), has generated more demand for Lucid vehicles. While Tesla’s series of price cuts has sparked both record vehicle production and deliveries, that hasn’t been the case for Lucid, which has been selling less-expensive versions of its Air sedan. The company recently announced its Q1 production and deliveries results which fell short of Wall Street expectations. For period that ended the March, Lucid produced 2,314 vehicles at its manufacturing facility in Arizona, while delivering 1,406 vehicles. These Q1 figures barely grew from what Lucid provided in Q3 of 2022. The company has already struggled generate positive operating cash flow, and is currently utilizing the cash on its balance sheet to fund its operations. At the end of Q4, Lucid had over $4 billion in cash on the balance sheet. This is after burning through roughly $3.3 billion in 2022. To better capitalize the company, its management announced a restructuring effort, including an 18% reduction in its workforce, or about 1,300 employees. This process, which will cost some $30 million in charges, is expected to be completed by the end of Q2. One of the main initiatives for 2023 is to ramp up production and deliveries. How will the restructuring impact these goals? On Monday the company will need to outline how it can achieve its growth objectives and do so profitably.
Plug Power (PLUG) - Reports after the close, Monday, May 8
Wall Street expects Plug Power to report a per-share loss of 26 cents on revenue of $205.14 million. This compares to the year-ago quarter loss of 27 cents per share on revenue of $140.8 million.
What to watch: Can Plug Power’s new power play spark a rebound in the stock? Known for its hydrogen-based technologies including fuel cells and electrolyzers that split water into hydrogen, the company now wants to dominate the market for electric-vehicle charging stations. Earlier this month, the company unveiled a new high-power stationary fuel cell system that will charge electric vehicle (EV) fleets in a manner that solves obstacles such as grid power capacity restrictions, clean power requirements, while reducing the strains on grid infrastructure upgrades and installations. "As EV adoption increases dramatically over the next few years and electricity demand strains the grid, our new high-power fuel cell system will be a game changer for the EV industry,” said the company. The question remains whether this offering can dramatically improve the company’s stock performance. PLUG stock has fallen 25% year to date, trailing the 7.73% rise in S&P 500 index. The shares are down some 56% over the past twelve months, compared to just a 0.26% decline in the S&P 500 index. In the most recent quarter, PLUG missed on both the top and bottom lines, with Q4 gross margin coming in at negative 36%. Although that was better than the negative 54% in the year-earlier quarter, it was overshadowed by the larger-than-expected quarterly loss. The company, however, remains optimistic about its future prospects, forecasting annual sales of $5 billion and 30% gross margin for 2026. These are ambitious targets, suggesting more than 600% growth above 2022. Whether the company can reach this goal remains to be seen. But in the near term, the company must show more progress in gross margin improvement for the stock to rebound.
Nikola (NKLA) - Reports before the open, Tuesday, May 9
Wall Street expects Nikola to lose 26 cents per share on revenue of $12.51 million. This compares to the previous quarter when the loss came to 21 cents per share on revenue of $1.89 million.
What to watch: There continues to the a prevailing question about Nikola’s lasting power, particularly whether the electric truck maker has enough capital to fund its growth. The shares have trended lower even though the company has begun to expand its customer base. The company recently announced a new order from the Alberta Motor Transport Association (AMTA) for with the sale of a Nikola Tre battery-electric vehicle (BEV) and a Nikola Tre hydrogen fuel cell electric vehicle (FCEV). The deal effectively expands the company’s business in Canada. Elsewhere, Nikola has met its delivery targets and appears on track to boost production in 2023. Notably, with several operating headwinds now removed, the road is less treacherous for the company. What’s more, Nikola has made significant progress in its effort to build-out its fueling network for hydrogen-fueled heavy trucks. Aiming to be a leading producer of electric trucks powered by hydrogen, the company plans to operate that segment under the HYLA brand and will supply for not only its own big rigs, but also those of its competitors. What isn’t clear, however, is whether Nikola has a clear path towards sustained revenue and profitability. It is this aspect that continues to spark skepticism whether the company can survive, much less thrive. If the company on Tuesday can instill optimism that growth and profitability can still be achieved in the quarters ahead the stock may yet find some traction to climb higher.
Disney (DIS) - Reports after the close, Wednesday, May 10
Wall Street expects Disney to earn 93 cents per share on revenue of $21.8 billion. This compares to the year-ago quarter when earnings came to $1.08 per share on revenue of $20.27 billion.
What to watch: Can Disney stock regain its magic? While the company has enjoyed strong success thanks to its streaming platform Disney+, its shares have fallen 16% over the past year, trailing the 5.5% decline in the S&P 500 index. Meanwhile, over the past six months, the stock is down 2%, while the S&P 500 index has risen close to 8%. The company’s battle with Florida Governor Ron DeSantis over Disney World's special taxing district hasn't helped. Analysts sees that as a distraction. Meanwhile, the company’s streaming platform Disney+ remains a key focus area given the upbeat subscriber results the market has witnessed from Netflix (NFLX). Netflix’s strong Q1 results has sparked optimism within the streaming landscape, suggesting Disney+ may remain a strong growth opportunity for the company in the next few quarters. Disney’s management has targeted Disney+ global subscriber gains to be between 230 million and 260 million by the end of 2024. However, total subscribers to Disney+ declined last quarter, falling about 1% to 161.8 million from the prior quarter's 164.2 million. Not a great way to announce Bob Iger’s return as CEO of the company. The market now wants to know if the subscriber growth targets are still attainable. While that subscriber goal would be impressive, if achieved, it will require significant investments, which may impact profits. The company's advertising-supported tier on Disney+, borrowing a strategy from Netflix, will be a key focus. Iger's return promised changes at the company, many of which he echoed on the conference call. On Wednesday investors will want additional details about the company’s long-term growth strategy.
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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