Oare they sick or won’t they? This is the question that prevails when discussing whether the Federal Reserve, whose two-day meeting is scheduled for December 13-14, will abandon its hawkish stance on interest rates. Although inflation has moderated somewhat, based on recent CPI data, these are not the only parameters weighing on the Fed’s decision. As such, Friday’s release of a better-than-expected November jobs report will likely be a key factor in what’s to come.
Despite the negative reaction to the jobs report, the market ended the session mixed, overcoming early jitters to close mostly flat. The Dow Jones Industrial Average was initially under pressure, falling more than 400 points as the jobs report showed continued strength even in the face of rising interest rates. According to the Labor Department, the economy added 263,000 jobs in November, beating expectations for an increase of just 200,000. The rate kept the unemployment rate steady at 3.7%.
The concern stems from the fact that the Federal Reserve may not reverse its hawkish policy stance if the labor market remains strong. But as the trading session continued, worries gave way to optimism about a potentially strong holiday shopping season in the fourth quarter. The Dow gained 34.87 points, or 0.10%, to close at 34,429.88. The S&P 500 index fell 4.87 points, or 0.12%, to end at 4,071.70, while the tech-heavy Nasdaq composite index fell 20.95 points, losing 0, 18%, to close at 11,461.50.
For November, the average hourly wage rose 0.6%, about double what economists expected. Wages rose 5.1% year over year, well above the 4.6% expected. In many ways, these collective measures suggest that the overall inflation environment is not having as negative an impact as other periods.
The question is, is this enough to force the Fed to slow rate hikes in future meetings? Friday’s market reaction suggests that investors expect the Fed to slow down. Traders are now betting an 80% chance that the Fed will now hike 50 basis points, slowing the decline from its 75 basis point increases it imposed in the previous four policy decisions. Will it happen? We will know in a few weeks.
Until then, here are the gains I’ll be watching this week.
Broadcom (AVGO) – Reports after the close, Thursday, December 8
Wall Street expects the company to earn $10.28 per share on revenue of $8.90 billion. That compares to the year-ago quarter where earnings were $7.81 per share on revenue of $7.41 billion.
What to watch: Growing concerns over reduced delivery times and declining revenue trends pressured the semiconductor industry for most of the year. And Broadcom, despite consistently beaten earnings expectations over the past two years, has not escaped the recession, especially given the company’s reliance on consumer-facing segments like smartphones and the high debit. But after taking a hit in recent months, chip stocks have come back strong in recent weeks, rising along with the rest of the tech sector on optimism that a recession can be avoided. One of the biggest movers was Broadcom, which saw its shares soar almost 20% in thirty days. However, stocks, which have fallen 17% since the start of the year, compared to a 14% drop for the S&P 500 index, still have some way to go. Having consistently exceeded earnings expectations over the past two years, you’d be hard pressed to find a stronger management team in the chip business. On a mission to become the global leader in infrastructure technologies, the company embarked on a wave of acquisitions and diversified its business outside of its core semiconductor segments. The company’s acquisition of VMware for $61 billion is the latest example. The VMware deal exposes Broadcom to various applications such as cloud management, arming it with a strong portfolio of high-growth services to drive revenue for years to come. For the stock to continue its uptrend, it will take upbeat revenue forecasts and data center results to continue cementing the growth thesis.
Cosco (COST) – Reports after closing, Thursday, December 8
Wall Street expects Costco to earn $3.17 a share on revenue of $54.71 billion. That compares to the year-ago quarter where earnings were $2.97 per share on revenue of $50.36 billion.
Keep an eye on: The retail sector has been under pressure in recent months as investors digest the impact of rising inflation at a time when the Federal Reserve is also raising interest rates. Despite this scenario, Costco is still expected to generate higher year-over-year earnings on higher revenue when it reports results. However, the company recently reported comparable sales growth for November, revealing only a 4.3% rise, significantly lower than the 7.7% expected by analysts. Additionally, e-commerce revenue fell 10.1%, although the company said online offerings had become more discretionary. The mixed results sent the stock down more than 6%. Equities have nonetheless performed very well during the market correction, falling 11% year-to-date, outpacing the 15% drop in the S&P 500 index, including a 10% rise in the past six months. , while the S&P 500 fell. 1%. But if strong Walmart (WMT) earnings were any indication, buying Costco stock ahead of earnings results might be a smart move. In a time when investors continue to weigh the potential impact on consumer spending that rate increases will have, and perhaps worse, a recession, Costco will continue to be a good defensive stock that also has growth qualities. . Plus, with membership renewal rates consistently above/around 90%, Costco’s stock is poised to outperform other retailers. Management will have to speak positively about its growth prospects and the macro impact on its customers on Thursday. The company’s profit margin forecast should also reflect this level of confidence.
DocuSign (DOCUMENT) – Reports after the close, Thursday, December 8
Wall Street expects DocuSign to earn 42 cents per share on revenue of $626.88 million. That compares to the year-ago quarter where earnings were 58 cents per share on revenue of $545.46 million.
What to watch out for: The electronic signature specialist’s actions have been punished over the past twelve months. While the company remains the leader in the e-signature space, including the recent shift to the cloud of contractual agreements, the market seems less convinced that DocuSign can return to the growth rates achieved at the height of the pandemic. But, with the pandemic less of a problem, the company’s revenue continues to slow. Investors want to know if now is the right time to bet on DocuSign taking over. Dan Ives, analyst at Wedbush Securities, thinks so. Ives recently updated DOCU, saying the headwinds that have hurt the business have “played out” and the downside from here is limited. While that’s not a glowing endorsement given the upgrade goes from Underperform to Neutral, the analyst sees signs of stabilization in the business. “We believe that execution on the [contract lifecycle management] transaction front have generally stabilized with figures now achievable for [fiscal 2023 and fiscal 2024]“, Ives wrote in a note to clients. That said, the stock is now at a very attractive valuation. But to reverse the negative downward trend, DocuSign must release a strong revenue growth forecast for the next quarter and exercise.
Lululemon (LULU) – Reports after closing, Thursday, December 8
Wall Street expects Lululemon to earn $1.96 per share on revenue of $1.81 billion. That compares to the year-ago quarter where earnings were $1.62 per share on revenue of $1.45 billion.
Keep an eye on: After a rough start to the year, driven by fears of rising inflation, rising interest rates and the prospect of a recession, Lululemon stock has come back strong. The stock is up about 16% in the past thirty days, outpacing the 6% rise in the S&P 500. And extending that six-month period, LULU stock has seen gains of 32% against a 1% drop for the S&P 500. As inflationary measures showed signs of easing, the pressure on retailers like LULU eased. For Lululemon, however, the company has shown its resilience during the downturn to maintain its strong profit margins. Thanks to its omnichannel operating model, including its direct-to-consumer strategy, the company recorded strong revenue growth in the last quarter. The global sportswear market is expected to reach $455 billion over the next five years, according to Statista, from $380 billion. The company’s international expansion strategy, combined with its powerful brand, will continue to drive shareholder value. For the stock to continue higher, investors will want to hear more on Thursday about how the company is navigating against near-term inflation headwinds, in addition to providing higher and lower momentum.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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