For some time, we have debated the merit of an overdue market selloff. Has it already come and gone? And if so, is this the worst it’s going to get? These are the two main topics on the minds of investors as we witnessed sharp declines earlier in the week, then only to end the week with an equally swift recovery.
As I’ve mentioned in previous posts, investors have been looking for an excuse to take profits. And it appears that occurred this past week initially driven by uncertainty over the potential collapse of China property developer Evergrande, which has the world’s largest pile of troubled debt, with an estimated $19 billion of obligations — many of which are actively quoted at distressed prices. News of Evergrande unraveling sent shockwaves across global markets, causing the Dow Jones Industrial Average to suffer its worst day in several months as investors question whether China will intervene to prevent a collapse.
However, despite the uncertainty, dip buyers rushed in as we have seen time and time again, helping the stock market to stage an impressive turnaround. It also helped that the Federal Reserve gave no indication that it will reduce economic support faster than expected. On Friday the Dow rose 33.18 points, or 0.1% to close at 34,798.00, after the Blue Chip index rallied 506 points on Thursday. The Dow powered higher despite a 6.26% decline in shares of Nike (NKE) after the sportswear giant missed Street’s revenue expectations.
The S&P 500 rose 0.15%, or 6.50 points to close at 4,455.48, while the tech-heavy Nasdaq Composite gave up 4.54 points, or 0.03% to close at 15,047.70. For the week, the Dow and the S&P 500 index gained 0.6% and 0.5%, respectively, while the Nasdaq rose less than 0.1%. Notably, the Nasdaq still ended in positive territory for the week despite rising yields. Thanks to jump of 9 basis points, the benchmark 10-year yield rose to around 1.45% — marking the largest weekly rate rise in six months.
In terms of market outlook, we are no worse than where we were a week ago, even with the increased volatility we experienced this week due to Evergrande. And with Fed Chair Jerome Powell signaling a dovish tapering tone until 2022, there are seemingly no near term catalysts to pressure equities for the anticipated 10% to 15% decline that typically defines a real correction. So, if the 3.5% decline this past week is “as good as it’s going to get” — what I have termed “the boredom-type decline” then we should take it.
As far as earnings, here are the stocks I’ll be watching this week.
Micron (MU) – Reports after the close, Tuesday, Sept. 28
Wall Street expects Micron to earn $2.33 per share on revenue of $8.22 billion. This compares to the year-ago quarter when earnings came to $1.08 per share on revenue of $6.06 billion.
What to watch: Micron stock is down 1.50% year to date, sharply underperforming not only the broader tech sector, but also the 18.4% rise in the S&P 500 index. What’s more, the stock has lost 13.3% over the past six months, trailing the S&P 500’s 14% rise. Investors are still unsure about the demand prospects of memory chips, namely NAND and DRAM which are use in various mobile devices such as smartphones. As well as chips to power cloud computing, AI, and 5G. Over the past few quarters, there has been concerns about weakening demand supply chain disruptions caused by the pandemic. As such, due to price softness in the chip market, Micron last week suffered a pair of price target cuts from both JPMorgan and KeyBanc Capital Markets. The former sees some DRAM “softness” heading into the new quarter and slashed its target price to $100 from $140, while the latter trimmed its target to $110 from $120. Still, from current levels of $74 that implies potential premiums of almost 50%. But for the stock to respond favorably on Tuesday Micron must guide in a manner that suggests confidence in the prospects of the memory chip business.
Bed Bath & Beyond (BBBY) – Reports before the open, Thursday, Sept. 30
Wall Street expects Bed Bath & Beyond to deliver EPS of 52 cents per share on revenue of $2.06 billion. This compares to the year-ago quarter when earnings came to 50 cents per share on $2.69 billion in revenue.
What to watch: Can Bed Bath & Beyond move beyond the meme stock theme? While the share price has risen 32% year to date, the stock is down 22% over the past six months, trailing the 13.77% rise in the S&P 500 index. It would seem the gains have faded as meme stock mania dissipates. Now under new leadership, Bed Bath & Beyond has shown some signs of accelerating transformation. First quarter results released in June yielded an adjusted profit of 5 cents per share, topping Street estimates. What’s more, the management then hiked the midpoint of the full year revenue guidance by $200 million to $8.3 billion, and EBITDA to $530 million, while introducing an adjusted earnings guidance at a midpoint of $1.50 per share. This demonstrated confidence in the company’s many initiatives which includes closing the worst performing stores. The question is, can the company continue to demonstrate consistent profitability and it transition the business away from strictly brick-and-mortar towards a digital power?
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.