October 11, Weekly Commentary, Market Analysis and Stocks Picks

Hello folks,

Focus shifting to Earnings and Holidays season:

The market has recently shifted its focus back to fundamental factors as it navigates through various macroeconomic influences, including the Federal Reserve's interest rate cuts, job market data, stimulus measures from China, and fluctuations in oil prices. In the upcoming week, earnings reports will take precedence, with major companies like ASML, Taiwan Semiconductor Manufacturing, UnitedHealth, Johnson & Johnson, Procter & Gamble, Netflix, and several financial companies and banks like American Express, Bank of America, Goldman Sachs, Morgan Stanley are set to release their latest financial results. Some major banks like Wells Fargo and JPMorgan Chase have already initiated the earnings season with positive outcomes (for a list of important earnings announcements on cards, please see the list in the Earnings section below).

Analysts anticipate that the overall performance of U.S. businesses in the third quarter will reflect a solid 4% profit growth for the S&P 500 index compared to the previous year. However, investor focus is expected to shift towards corporate guidance. Wall Street holds an optimistic view for the fourth quarter, projecting a notable 14% increase in profits and sustaining double-digit growth in the following year.

The stock market reached new highs last week, with a strong rally underway. As the holiday season approaches, further gains are anticipated. However, two factors that could undermine market confidence are geopolitical conflicts, particularly in the Middle East, and the upcoming U.S. elections in November. Historically, the market tends to adjust quickly, shaking off temporary uncertainties and continuing its upward trajectory.

S&P 500 closed the week at 5815 and is now close to an achievable upside target of 6,000. Similarly, Nasdaq is also above its key moving averages. Dow Jones Industrial also set new highs and closed at 42, 864. The small cap index Russell 2000, however, has lagged other major indices this year but it is expected to catch up as interest rate cuts are favoring financial sector and this sector loves to perform well in the 4th quarter of the year which can support Russell 2000 to move up.

Last week, the performance of major markets was as follows:

Index Friday (10/11) Weekly YTD 1 Year

S&P 500: +0.61% +1.11% +21.91% +32.86%

Dow Jones Industrial: +0.97% +1.21% +13.73% +26.80%

Nasdaq 100: +0.15% +1.18% +20.48% +33.01%

Nasdaq Composite: +0.33% +1.13% +22.19% +34.29%

Russell 2000: +2.03% +0.96% +11.21% +27.52%

Perhaps, it is important to review which sectors of the market are outperforming and which are lagging:

Sector Weekly Performance

Technology, XLK: +2.45%

Industrial, XLI: +2.15%

Financials, XLF: +1.88%

Health Care, XLV: +1.48%

Materials, XLB: +0.76%

Staples, XLP: +0.21%

Real Estate, XLRE: -0.21%

Energy, XLE: -0.40%

Communications, XLC: -0.50%

Discretionary, XLY: -0.80%

Utilities, XLU: -2.53%

The Tech sector regained its momentum solidly supported by Industrials and Financials (note that these two sectors historically like the 4th quarter) while other growth sectors like Communications and Discretionary were under relative pressure (mainly because of Tesla which was a big drag on XLY on Friday after its Robotaxi event). After performing well in a few good weeks recently, Energy and Utilities have cooled down last week. Crude oil has been perking up recently but cooled down last week pausing the XLE rally. Healthcare is another sector performing well recently and is moving forward due to strength in Biotech.

Important Events next week:

Not many economic events and reports during the upcoming week.

Thursday: Core Retail Sales (MoM), Initial Jobless Claims, Philadelphia Manufacturing Index, Industrial Production

Friday: Housing Starts, U.S. Baker Hughes Total Rig count.

Important Earnings this week:

Later in the week, the third quarter earnings announcement season will kick in starting with banks.

Tuesday (10/15): Interactive Brokers (IBKR), United Airlines (UAL), United Health (UNH)

Wednesday (10/16): Morgan Stanley (MS), Abbot (ABT), ASML Holding (ASML)

Thursday (10/17): Netflix (NFLX), Taiwan Semiconductors (TSM)

Friday (10/18): American Airlines (AAL), Schlumberger (SLB), Proctor & Gamble (PG)

Actionable Stocks:

Long-Term Stocks:

MSFT:

Microsoft has underperformed S&P 500 in 2024 so far (10% vs 21.91%), but it has received a consistent “Strong Buy” rating from the 38 analysts covering the stock with a mean target price of 503.55, i.e., 21% higher than Friday’s closing prices. We still see MSFT as a long-term investment and the company having the ability to monetize its AI investment. In fact, it is close to its 200-day moving average and could provide a suitable entry for long-term investors.

NVDA:

As mentioned in last few weeks’ commentaries, Nvidia is once again looking strong and staging a breakout to all-time highs beyond 140.75. It is likely to continue its past year trend, but investors should be cognizant of the fact that technically it is in the highly overbought territory. Therefore, it is not recommended to invest in a full 100% position and better risk management strategies should be adopted. In any case, investors are not allowing Nvidia to drop below 100 level recently. Remains a long-term favorite.

AAPL:

We continue to like Apple’s current consolidation as Oct-Jan are historically good months for Apple and it is likely to stage a breakout past 237 provided no unwarranted move brings the entire market down (such as a geopolitical event or an election surprise). Remains our long-term favorite and a leader.

COST:

Costco has pulled back to its 50-Day EMA and is providing suitable entry at current levels with a tight stop loss around 860. It remains a long-term leader and current pullback provides an attractive entry.

Medium- and Short-Term Picks:

META:

Meta seems extended at current levels. Let us wait for an alternative buy point or a pullback to its 50-day Moving Average which is due. Meanwhile, if you are already in a position then hold could be a better strategy for now.

AMZN:

As mentioned last week, Amazon is eyeing a buy point at 195.36. The upcoming holiday season forecasts are favorable for Amazon and investors could push it beyond 200 eventually. Therefore, it is actionable at current levels.

PLTR:

Palantir increased by 8.75% this week and is on our watchlist for a suitable entry on a pullback. The stock seems to be another AI winner in the longer run.

Interesting Stocks for Watchlist:

As stated earlier, we target companies which have strong fundamentals, continuous earnings growth and are expected to increase their earnings in future as well, so even if they drop with the broader market, chances of their rebound are stronger based on their relative strength to the rest of the market. Here are some stocks to consider:

AVGO:

Broadcom has fought back after hitting a low in early September. The last pullback to its 50-days EMA at 165.80 found support last week and we think that another intraday pullback to 170-175 range will again find support and a much better entry targeting the 200 level.

CMG:

CMG continues to consolidate and as stated last time it could provide a surprise move upward after its upcoming earning announcement on October 29. The stock is actionable at current levels and is likely to cover its ground lost during the last three months. Any move below 52.65 will be a sell signal.

AMD:

AMD is also consolidating before its next earnings due on October 29. It is likely to test 187 level and remains on our radar.

HOOD:

We mentioned Robin Hood two weeks ago and finally it broke out last week, rising by a hefty 14.77%. Any pullback close to the previous buy point of 24.13 will provide another entry. HOOD is likely to continue its trend in the longer term.

PEGA:

Pegasystems Inc. is a leading provider of CRM software enabling organizations to manage a broad array of customer interactions. It is actionable at the current price level while the long-term indicators support a trend continuation targeting a 20% upside while maintaining a 8% stop loss below the 50-Day EMA.

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