October 4, Weekly Commentary, Market Analysis and Stocks Picks

Hello folks,

September and October typically see a retreat in stock performance, but this year has been different. Major indices have once again brushed off tensions in the Middle East, showing a modest increase last week and demonstrating remarkable resilience. Positive economic indicators have bolstered market sentiment: oil prices surged by 11% amid Middle East unrest, while the U.S. economy added 254,000 jobs in September—significantly surpassing expectations. Wages also rose, yet inflation remains manageable, leading to speculation that the Federal Reserve will continue its rate-cutting strategy. However, the market now anticipates a more modest 25 basis point cut in the upcoming cycle, down from earlier expectations of a 50-basis point reduction.

S&P 500 closed the week at 5751, close to its all-time high of 5762 and an achievable upside target of 6,000. Similarly, Nasdaq is also above its key moving averages. Russell 2000, however, lagged as the 10-year yield rose significantly hurting the stocks of Real Estate and Home builders. S&P 500 gained 2.1% in September, which is also significant as the average return for September is -1.1% since the great depression of 1929. Nasdaq and Tech sectors were partly buoyed by Nvidia, which gained 2.9% last week as its CEO disclosed that its next generation AI related chips are witnessing “insane” demand while simultaneously reducing the delays concerns.

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

Index Friday (10/04) Weekly YTD

S&P 500: +0.90% +0.22% +20.57%

Dow Jones Industrial: +0.81% +0.09% +12.37%

Nasdaq 100: +1.22% +0.13% +19.07%

Nasdaq Composite: +1.22% +0.10% +20.83%

Russell 2000: +1.40% -0.54% +10.14%

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

Sector Weekly Performance

Energy, XLE: +6.87%

Financials, XLF: +1.11%

Utilities, XLU: +1.11%

Communications, XLC: +0.97%

Industrial, XLI: +0.50%

Technology, XLK: +0.08%

Health Care, XLV: -0.90%

Discretionary, XLY: -1.33%

Real Estate, XLRE: -1.74%

Materials, XLB: -1.81%

Staples, XLP: -1.87%

Energy outperformed last week due to a spike in Crude Oil prices due to Middle East tensions. Financials traditionally outperform the broader market in the 4th quarter as history goes while Utilities are buoyed by players like CEG (Constellation) and VST (Vista) which are attracting investors as big tech players like Microsoft and Google are locking in the power agreements with Utilities due to hug anticipated power demand for their AI businesses and data centers. On the other hand, Discretionary still lags (Amazon and Tesla are major players here). It is important to bear in mind that the US dollar has resumed its strength against other major currencies, a factor that could shake the stock market rally as generally a strong dollar may lead institutional investors to shift some funds to safer assets like treasury bonds which could negatively impact stock prices.

Same goes for Gold which has seen historic highs recently, but a review of last 12 years reveals that stocks have outperformed Gold during the same period especially when the US dollar is rising, so going forward we don’t believe Gold will beat stocks in the long term unless the geopolitical events (such as Middle East events) trigger an investor rush towards safer assets like Gold.

Important Events next week:

Two important events this week are FOMC meeting minutes and the PPI report which supplies 30% of the core PCE price index:

Wednesday: FOMC Meeting Minutes, 10-Year Note Auction, Crude Oil Inventories

Thursday: Core CPI (MoM and YoY), Initial Jobless Claims

Friday: PPI (Producers’ Price Index)

Important Earnings this week:

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

Thursday (10/10): Delta Airlines, Progressive Insurance

Friday (10/11): JP Morgan, Wells Fargo

Actionable Stocks:

Long-Term View: We still believe that the long-term trend is intact hence if investors have enough cushion on these stocks, then they could hold it for the long-term. In any case, once you have 10-15% profit on any stock then do not allow it to go down and end up in a loss. Cut down your losses or at least close the positions at par. We can always re-enter a stock later.

Long-Term Stocks:

MSFT:

Microsoft lost 1.7% last week but remains above its key moving averages. Perhaps it is consolidating before its next results scheduled for October 22. Sep-Oct are generally weaker months for Microsoft allowing to set up for another move.

NVDA:

Nvidia has rebounded in the last two weeks amid its CEO’s words that it is experiencing a huge demand for its next generation AI chips. Its long-term trend is intact currently and recent strength could push it upward to test the high levels around 140 (and a possible breakout).

AAPL:

We continue to like Apple’s current consolidation as investors are wasting no time to accumulate shares on every pullback. Remains our long-term favorite and a leader.

COST:

Costco has pulled back to its 50-Day EMA after recent earnings. This could provide an alternate entry to this long-term leader. Watch out for a further pullback to 821.64 and any sustained move below this level could trigger a sell signal, otherwise this consolidation could provide a lucrative entry in this long-term leader.

Medium- and Short-Term Picks:

META:

Meta surged to new highs as expected (see our last two months commentary). Let us wait for an alternate buy point or a pullback to its 50-day Moving Average which is due.

AMZN:

Amazon’s chart is interesting. It is above its key moving averages and eyeing a buy point at 195.36. The upcoming holiday season forecasts are generally favorable for Amazon and investors could push it beyond 200 eventually.

PLTR:

As mentioned last week, this stock could be another winner in a year or so. Let us keep it on our watchlist and wait for a better entry like META.

Interesting Stocks for Watchlist:

As stated above, we are targeting 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:

TXRH:

Texas Roadhouse Inc is a full service, casual dining restaurant chain. After a long consolidation for several months, the stock seems to be breaking out past 180.69 level and is actionable now with a tight stop loss around 169.82. Long-term indicators fully support a continuation of the trend.

CMG:

CMG is consolidating and could provide a surprise move upward on its upcoming earnings on October 29. This stock is likely to cover its ground lost during the last three months. Any move below 52.65 will be a sell signal.

AMD:

We mentioned earlier that AMD is showing strength and is likely to test 187 level. It has come from 135 to 170 and is likely to go beyond 180.

HOOD:

Robin Hood tried, and its breakout failed, nevertheless it is still close to its buy point of 24.13. Let us see if it can clear this level.

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Happy Trading and best regards,

Disclaimer:

The information provided here is for educational / learning purposes only and should not be taken as purchase or sell recommendations. Trading / Investing in Stocks and derivatives is highly risky and could result in a substantial or complete loss of invested capital.

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