Five-Day Rally Ends While Waiting for Big Tech Reports

·6-min read

Stocks finally took a break after five days of gains on Tuesday as investors waited on a trio of big tech heavyweights to report after the bell. Meanwhile, the Fed’s two-day policy meeting began today.

The NASDAQ saw the sharpest decline of 1.21% (or about 180 points) to 14,660.58. Shares of Alphabet (GOOG) dropped more than 2% in the session, while Apple (AAPL) was off 1.5% and Microsoft (MSFT) dipped almost 0.9%. These declines came as the market awaited their quarterly reports after the close.

The S&P, which has a good amount of tech exposure as well, slipped 0.47% to 4401.46, while the Dow declined 0.24% (or about 85 points) to 35,058.52.

These losses end a very impressive five-day winning streak for all the indices, which began after the sharp selloff on Monday, July 19 due to delta variant concerns. It also ended two consecutive sessions of closing highs.  

We saw positive earnings data on Tuesday with rising consumer confidence in July and soaring home prices in May, while durable goods orders increased but fell short of expectations. However, investors were most interested with the upcoming tech reports, which all beat expectations on both the top and bottom lines.

AAPL’s fiscal third quarter earnings beat the Zacks Consensus Estimate by 30% as revenues jumped 36% year over year. MSFT’s fiscal fourth quarter earnings beat by 14.2% as revenue for its Intelligent Cloud climbed 30%. And GOOG’s second quarter earnings topped 37% on total revenue growth of 62%.

Unsurprisingly, though, the market’s being kind of a spoilsport, just like it was last earnings season. AAPL and MSFT are each off about 2% afterhours, as of this writing, while GOOG could only muster a 0.5% advance.

The major tech name coming after the bell on Thursday is Facebook (FB). Other reports include Pfizer (PFE), Shopify (SHOP), McDonalds (MCD), Boeing (BA), and hundreds of others.

Tomorrow may end up being the most consequential session of the week. Not only will we see how the market reacts to tonight’s three major reports, but we’ll also be hearing from Fed Chair Jerome Powell after the Committee concludes its two-day meeting. Will the delta variant impact their future plans, especially when it comes to tapering? We’ll see...

Today's Portfolio Highlights:

Stocks Under $10: With people finally being able to celebrate birthdays and other special events, it’s no wonder than Party City Holdco (PRTY) has caught Brian’s eye. Earnings estimates have moved higher for this year and next, which helped this party supplies company gain the enviable status of Zacks Rank #2 (Buy). The editor likes its valuation of 14x forward earnings multiple, especially for a company that posted topline growth of 3% last quarter with expectations for 11% this year. He also appreciates that margins have been improving by about 80 basis points in each of the last few quarters. Brian decided to buy the dip in PRTY on Tuesday, while also getting rid of Berry Corp. (BRY) after a downturn in the oil patch. Read the complete commentary for more specifics on today’s action. Meanwhile, Cassava Sciences (SAVA) was the best performer among all ZU names today with a rise of 6.3% and is also the biggest gainer in the past 30 days by surging 62.6%.

Surprise Trader: Over the past four quarters, AdvanSix (ASIX) has topped the Zacks Consensus Estimate each time with an average beat of 45%. And now this chemicals company, which is a producer and supplier of Nylon 6 materials, has a positive Earnings ESP of 21.3% for the quarter coming before the bell on Friday, July 30. This Zacks Rank #1 (Strong Buy) also has a Zacks VGM Score of “A”. Dave thinks this stock is poised for another positive surprise, so he added ASIX on Tuesday with a 12.5% allocation while also selling Hancock Whitney (HWC) for a slight loss. Read the full write-up for more on today’s moves.

Large-Cap Trader: We’re having a selloff in the last week of July, so John thought this was a good time for his turn-of-the-month portfolio changes. He sold Jabil (JBL) and NetApp (NTAP) for slight losses and then bought three large-cap growth stocks from a diverse set of attractive industries. The new buys are:

• Laboratory Corp. of America (LH) – a leading global life sciences company
• Lattice Semiconductor (LSCC) – developer of programmable logic devices
• Regal Beloit (RBC) – maker of motion control and power generation products

In addition to being major players in top-ranked industries, these companies are Zacks Rank #2s (Buys) that beat earnings estimates by double digits in their most recent quarterly reports. These companies also averaged double-digit surprises over the last four reports. The editor is putting 5% into each of these names. Make sure to read his complete commentary to learn a lot more about these new buys.

Headline Trader: Shares of FedEx (FDX) sold off this morning in sympathy with its main competitor UPS (UPS), which announced slowing domestic volumes and pinching margins in its quarterly report today. However, Dan thinks the prospects of these two companies are different, despite the similarity of their business. UPS was at a massive valuation premium compared to its competitor, so this pullback seems justifiable. But the editor thinks FDX is ready for its “next leg higher as today’s sell-off pulls back the slingshot”. He thinks this is the perfect entry point to double down on his FDX position. Read the full write-up for more.  

Zacks Short Sell List: This week's adjustment swapped out two positions. The short-covered stocks were Incyte (INCY, +3.3%) and StoneCo (STNE, +1.9%), while the new buys that filled these opened spots were GoodRx Holdings (GDRX) and Maxar Technologies (MAXR). Learn more about this emotion-free portfolio that takes advantage of falling and volatile markets by reading the Short Sell List Trader Guide. In other news, this portfolio had a top performer today as the short in Las Vegas Sands (LVS) rose nearly 4%.

All the Best,
Jim Giaquinto

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