Shares rose Friday on hopes that a debt ceiling deal would be agreed. Congress and the Biden administration are reportedly seeking a deal to raise the U.S. debt ceiling for two years. It remains to be seen when lawmakers will actually reach a deal to raise the U.S. debt ceiling, but investors are still optimistic the U.S. will avoid a default.
Investors are comforted by the urgency of lawmakers. “We have to go further now,” House Speaker Kevin McCarthy said Thursday night. But not everyone sees this through rose-tinted glasses. “Once a debt deal is done, the market will have to deal with the harsh reality that the Fed is trying to destroy this economy,” said Ed Moya, senior market analyst at Oanda on Friday. “The end of tightening may not happen until the end of summer, which means there will likely be more significant rate cuts next year.”
For now, the market is looking at one headline at a time. The Dow Jones Industrial Average rose 328.69 points, or 1%, on Friday to close Friday at 33,093.34. The S&P 500 index rose 54.17 points (1.30%) to close at 4,205.45. The Nasdaq Composite Index of tech stocks, which surged earlier in the week following Nvidia’s (NVDA) results, rose 277.59 points, or 2.19 percent, to close at 12,975.69. Nvidia, which surged to all-time highs on Thursday, fueled the rally in both chip and artificial intelligence stocks by showing earnings above earnings and a strong earnings outlook.
The Nasdaq was the biggest gainer of the week, up about 2%. The Dow Jones Industrial Average fell 1%, while the S&P 500 Index gained less than 1%. With Friday’s gains, all three major benchmarks are firmly above their 200-day moving averages that they abandoned earlier this week. Stocks are no longer cheap, but investors are weighing whether this is still a buying opportunity. The main question is what the Federal Reserve will do with interest rates.
The latest inflation report suggests the Fed’s rate hikes may not end as previously expected. Personal consumption spending rose 0.8% quarter-on-quarter in April, better than expected. Meanwhile, personal income was in line with expectations at +0.4%. However, the Fed’s main inflation indicator, the PCE price index, rose 0.4% from the previous month, exceeding expectations. The latest figures put the chance of a 25 basis point hike at the Fed’s June meeting at 57%, up from 52% on Thursday.
Conversely, the likelihood of the Fed pausing rate hikes has taken a step back, dropping from 48% to 43%, according to the CME FedWatch Tool. As I’ve said many times, it seems safest to continue investing in the market no matter what the Fed does. The time to exit the market (during a bear cycle) is over. The S&P 500 Index is still about 8% below its all-time high, but still has room to recover.
In terms of earnings, I will introduce stocks to watch this week.
C3.ai (AI) – Post-Trade Report, Wednesday, May 31
Wall Street expects C3.ai to post a loss per share on earnings of $71.32 million. By comparison, he lost 21 cents a share on sales of $72.32 million in the same period last year.
What to watch: The growing popularity of artificial intelligence, and ChatGPT in particular, is more than just hype. That’s true. One of the companies riding the AI wave is his C3.ai, which has more than doubled its share price due to growing investor interest. But enterprise artificial intelligence companies are doing everything they can to rise to leadership positions. The company recently announced the general availability of its generative AI product suite on Alphabet’s Google (GOOG, GOOGL) Cloud Marketplace, as well as preliminary results, including positive Q4 cash flow. Did. This suggests an increase in the $800 million of cash currently on the company’s balance sheet. Management is looking to change the company’s business model, moving the business from short-term revenue to transaction-based pricing methods, while increasing long-term revenue by growing its customer base. These efforts seem to be paying off and growth is beginning to reaccelerate. Commenting on the C3 Generative AI announcement earlier this year, CEO Thomas Siebel said, “Since we announced C3 Generative AI, we have been working with existing customers and prospective customers to introduce these capabilities and make them available across systems. We have received strong interest from our customers.” The product suite is equipped with enterprise search capabilities that will allow businesses to search through their entire database to find and retrieve relevant information, but the company said Wednesday it will continue to exist and improve profitability. We will strive to prove that we are on a sustainable path.
game stop (GME) – Post-Trade Report, Wednesday, May 31
Wall Street expects GameStop to post a loss of 12 cents per share on earnings of $1.36 billion. By comparison, he lost 52 cents a share on sales of $1.38 billion in the same period last year.
Stocks to watch: Meme stock mania isn’t as widespread as it was a year ago, but Gamestop remains one of the most widely followed stocks in the market. The stock is up 27% year-to-date, outpacing the S&P 500’s 8% gain. Most of those gains came in the last 30 days, with the stock up about 23%. Currently trading at about $23 a share, the stock is down about 52% from its 52-week high of about $48. This video game retailer exhibits solid fundamentals, showing positive cash flow and an overall strong financial position. The company reported a surprise profit last quarter despite continuing to struggle with sales growth. Additionally, US video game sales fell for the second month in a row in April compared to the same month last year. Overall video game sales fell 5% to $4.12 billion in April compared to $4.32 billion in March. As it stands, video game sales are down 2% year-to-date. Console sales increased slightly, but not enough to offset the decline. If this trend continues, it could affect GameStop’s future performance. The company is expected to generate about $6 billion in revenue for the fiscal year. Gross margins, which are currently around 25%, need to grow further to remain profitable. So far, management has done a solid job of cutting costs. If video game sales continue to decline, this must continue. However, the collectors category was a bright spot, with Q4 earnings up 14% year-over-year. On Wednesday, GameStop will have to build on its success in the fourth quarter and show it’s playing consistently.
Z.Scaler (ZS) – Post-Trade Report, Thursday, June 1
Wall Street expects Zscaler to earn 42 cents a share on sales of $417.16 million. By comparison, in the same period last year, he earned $286.81 million, or 17 cents per share.
What to watch: Cybersecurity stocks like Zscaler have risen in recent weeks, after the cloud-based web security provider posted strong preliminary Q3 earnings, boosting its outlook for fiscal 2023. It has soared nearly 40% in a month. Despite the big rally, the stock is still down nearly 10% over the past six months and is still down 4.4% over the past year. In other words, the company still has plenty of room to make up. In that vein, further profits could be expected given rival Palo Alto Networks (PANW) just announced better-than-expected results. In addition to a strong product portfolio, Zscaler’s strength lies within its exceptional gross margin and cash generation capabilities. The company’s cloud platform will allow customers to route data traffic to external data centers where his Zscaler houses the software tools. And the demand for improved security continues to grow as companies adopt a work-from-home mindset in hybrid environments. This change has fueled the proliferation of virtual private networks that allow employees to connect to the office remotely. Investors waiting for a better entry point could do well here, given that cybersecurity will remain one of the hottest areas in tech over the next five years. On Thursday, Zscaler’s profits could rise for the first time in five years.
