Sep 20 Market Analysis and Stocks Picks

Hello readers,

Finally, the big announcement came. Fed President announced them much awaited fifty basis point interest cut on Wednesday, initially Stocks rose and then slipped on Wednesday only to roar back on Thursday. Both S&P 500 and Dow Jones Industrial indices closed at record high levels while Nasdaq also rose strongly. Small stocks (Russell 2000) also joined the party. However, the triple witching on Friday (Monthly options, Futures and Future Options expirations) caused the market to jitter and gave back some of their returns which as expected at these levels.

Last week, the major markets performed as follows:

Index Friday (09/20) Weekly YTD

S&P 500: -0.19% +1.36% +19.55%

Dow Jones Industrial: +0.09% +1.62% +11.60%

Nasdaq 100: -0.24% +1.42% +17.62%

Nasdaq Composite: -0.36% +1.49% +19.56%

Russell 2000: -1.07% +2.19% +10.98%

Last week’s performance is praiseworthy given the fact that Sep 17-26 is generally the weakest period of the year for stock returns (dated back to the 1950s) as mentioned last week. Investors seemed confident that Fed has achieved its inflationary control targets and is confident that Economy is strong as put forth by the Fed president that he is not expecting a recession. However, there is skepticism in some camps that they do not want to lose the upcoming US elections in November and hence they are trying to boost the market while fading away the recessionary fears at the same time.

As Alex Eule (Barron’s) notes that the normal modus operandi for Fed is to make smaller, quarter-point moves and the half-point or more cuts are generally uncommon. In fact, these were instigated only during the financial crisis like 2008-9 or during the Covid-19 pandemic. So, what has caused the Fed to make this bigger move? Are they fearing a slow down in economy which they are not admitting at this time when they say “Inflation is coming down closer to our 2% objective over time, and the labor market is still in solid shape. So, our intention is really to maintain the strength that we currently see in the U.S. economy.” Some investors are worried that not everything is hunky-dory, and financial turmoil could unfold if the economy slows down coupled with the uncertainties of elections and the geopolitical events like Middle East conflict.

We, therefore, remain nimble in our exposure and selection of stocks till this traditionally weak period is over and the outcome of US elections is clear. Till then, we should remain focused on companies with relatively high strength compared to their peers and Industry groups and continuous revenues and earnings growth for last several quarters.

Important Events next week:

Monday: Global US Manufacturing PMI (Sep)

Tuesday: Consumer Confidence

Wednesday: New Home Sales,

Thursday: Durable Goods Orders, GDP, Initial Jobless Claims

Friday: CPI (Core PCE Price Index) MoM and YoY

Important Earnings this week:

Tuesday (09/24): KB Home (KBH)

Wednesday (09/25): Micron (MU)

Thursday (09/26): Costco (COST)

Majority of the companies in S&P 500 and Nasdaq have already announced their results for the 2nd Quarter 2024, so not much is left for the recent week:

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 rose by 1.09% last week and remains above key moving averages showing resilience. Being a long-term leader, Microsoft is still actionable at current prices for investors interested in initiating or adding to a position.

NVDA:

Nvidia rose along with the market on Thursday, but it is consolidating in the recent trading range. Considering the weak seasonal patterns, it will be better to remain patient before trying to initiate or add new positions. The long-term trend remains intact for Nvidia.

AAPL:

Finally, the iPhone 16 is here (with a new addition of AI features). For the last 17 years, Apple has been found underperforming the market at or just after the launch of its new iPhone products but overall, it has returned an annualized return of 26% much better than the average return of S&P 500. Therefore, any weakness running into October will be an opportunity for enthusiastic investors to accumulate shares of this long-term leader.

COST:

Costco is consolidating before its next earnings on Thursday. Actionable at current prices, Costco could move beyond its all-time highs of 923.83 made last week. Any pullback to 850 levels would likely find buyers providing an alternate entry point.

Medium- and Short-Term Picks:

META:

Meta performed in line with our expectations and rose from its 20-Day EMA and the previous highs at 544. Wait a better entry at 521 as META is expected to pullback slightly along with the broader market. Aggressive and long-term investors could still find it actionable at current prices.

AMZN:

As mentioned in the last few weeks, Amazon is slowly crawling upwards, and the long-term uptrend is in place. The last quarter is traditionally not a strong quarter for Amazon, but continued market strength could propel it beyond 200. It will be a buy on a sustained breakout above 200.

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:

CMG:

As expected, CMG continued to consolidate after taking back its lost ground. It is actionable at current prices and could move another 20% to test its highs at 69.26 after its next earnings announcement on October 29.

AMD:

After months of slump and sideways movement, this chip maker is ready to start moving again. Being a volatile Tech stock, a wider stop loss below the current lows of 132.11 is suggested targeting a move back to 187.28

PHM / DHI / KBH

Housebuilders pulled back slightly last week due to week results of Lennar (LEN). Nevertheless, they are poised to benefit from the recent rate cuts. KBH will announce its results on Tuesday and could lead the pack along with Pulte Group (PHM) and D.R. Horton.

LLY:

The pharma giant is trading in a tight pattern and looks poised to continue its upward trend. History also shows that LLY stock performed much better than the overall market during the last quarter. It is currently actionable with a tight stop loss at 893.

IOT:

Samsara continues to rise and seem extended but keep it on your watchlist for a pullback and entry in the 39.80 – 42.64 range.

RCL

Staging a new all-time high, Royal Caribbean Cruise has been enjoying good times since the lows of 2022 around 31. Since then, it has increased by more than 5 folds. The stock is currently actionable with a stop loss below 160 and is likely to continue its uptrend.

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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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