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Stocks Overcome GDP, Jobless Claims Disappointments

·5 min read
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After two straight sessions of sluggish returns, the major indices fought past weak data on Thursday to finish in the green and with a chance for a positive weekly performance. Meanwhile, shares of Amazon (AMZN) are getting shellacked afterhours due to a revenue miss from the e-commerce giant.

The Dow was up 0.44% (or about 153 points) today to 35,084.53, while the S&P advanced 0.42% to 4419.15. These indices both go into Friday’s session with slight gains for the week so far. The NASDAQ rose 0.11% (or more than 15 points) to 14,778.26, but is down about 0.4% over these four days.

The day certainly had its challenges. GDP in the second quarter rose only 6.5%, which was far beneath expectations of more than 8%. The result was only barely better than the first quarter’s advance of 6.3%. In addition, jobless claims came to 400,000 last week, which was better than the previous week’s 424K but above expectations of around 385K.

So how did stocks manage to rise amid such headwinds? Perhaps it’s some holdover from yesterday’s Fed statement that concluded the two-day policy meeting. The economy is improving (which means we’re getting closer to the inevitable tapering), but the Committee says we’ve still got some ground to recover before making any changes.

“Powell’s ‘stay the course’ attitude really put the market at ease regarding tapering,” said Jeremy Mullin in Counterstrike. “We likely have smooth sailing with the Fed until the end of the year and we won’t have to worry about Jackson Hole.”

Another positive factor at the moment is the solid earnings season, though it may be difficult to see if you’re judging by the market’s reaction. For example, shares of Facebook (FB) dropped 4% in its first session since reporting last night, as the social media giant beat by double digits on the top and bottom lines but warned of a sales slowdown moving forward.

Unfortunately, it looks like the FAANGs saved the worst for last, as shares of retail giant Amazon (AMZN) are down approximately 7% afterhours. The company’s second-quarter earnings topped the Zacks Consensus Estimate by more than 23% as revenue again eclipsed $100 billion by rising 27% to $113.1 billion. However, revenue missed expectations and the third-quarter outlook was sluggish.

It’ll be interesting to see how much AMZN’s report impacts Friday’s session, which is not only the final day of the week but also the last day of July.

Today’s Portfolio Highlights:

Options Trader: For the second day in a row, this portfolio pulled profits on a premium that doubled and then repositioned into a new option. The focus today is fast food company Yum Brands (YUM), which reported strong quarterly results before the open that included positive surprises of more than 22% for earnings and over 9% for sales. Specifically, Kevin sold to close the October 115.00 Call in YUM for a nearly 106% return and then bought to open a January 130.00 Call with the original dollars committed. As with Floor & Décor (FND) yesterday, the principal is now protected and the service can continue making money on YUM. Read the full write-up for more.

Commodity Innovators: Shares of AGCO Corp. (AGCO) were on the rise today after this agriculture equipment manufacturer reported earnings this morning. It announced big beats on both the top and bottom lines, while also raising its guidance. With the stock trading just under its 50-day moving average, Jeremy decided to add AGCO on Thursday before the bulls make a push higher over the next month. He sees this new pick as a mid-term holding. Get more specifics in the complete commentary.

Surprise Trader: Today’s addition of Kennametal (KMT) provides yet another example of Dave’s favorite type of divergence, as the stock’s price is on the decline while the earnings estimates are on the rise. This Zacks Rank #2 (Buy) is a manufacturer, marketer and distributor of high-speed metal cutting tools, tooling systems and wear-resistant parts. It has beaten the Zacks Consensus Estimate for five straight quarters now and has a positive Earnings ESP of 6.78% heading into the next print on Monday, August 2 after the bell. The editor added KMT on Thursday with a 12.5% allocation, while also getting out of Trustmark (TRMK) with a slight loss. Read the complete commentary for more.

Counterstrike: It looks like Salesforce (CRM) is about to breakout, and Jeremy wants to get into this cloud computing solutions company before it does. This Zacks Rank #2 (Buy) just needs a catalyst, and then it could rally past $300. The editor is getting into the name today with an 11% allocation. He also picked up Sleep Number (SNBR), the Zacks Rank #1 (Strong Buy) mattress innovator that was really hot during the pandemic. It has since faded by 35% from its highs, but the stock just reported a strong quarter with a big beat and raised guidance. Nonetheless, shares sold off and opened up a classic counterstrike play. Jeremy thinks SNBR will break above its 200-day, so he added the stock with a 4% allocation. The portfolio also sold Gibraltar Industries (ROCK) for a slight loss. Read the full write-up for more.

Home Run Investor: Chip stocks are likely to see a rebound in the second half, according to Brian. That point-of-view was backed up recently through a solid beat-and-raise quarterly report from MaxLinear (MXL), which provides radio-frequency analog and mixed signal semiconductor SoC solutions. The company reported a positive surprise of 6%, while revenues soared year over year and inched past the Zacks Consensus Estimate. Shares of MXL jumped 12.3% on Thursday, which was the best performer among all ZU names. The stock is now up 41.6% in the portfolio since being added back on February 10.

Have a Good Evening,
Jim Giaquinto

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