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Stocks Pause Ahead of Tech Earnings

Jim Giaquinto

When you’ve soared approximately 25% in four months to new highs, it’s understandable to take a bit of a breather. That’s the route the S&P has taken from the Christmas Eve lows through yesterday’s closing high to today’s slight pullback.

In addition to the fatigue though, the market was also waiting until after the bell for a couple big tech names. Technology was a major factor in this impressive rebound, so it will have a big say in sustaining this momentum.

On Wednesday, the NASDAQ slipped 0.23% to 8102.01, though it did set a new all-time intraday high slightly above 8139. The S&P declined 0.22% to 2927.25. These indices both closed at record highs yesterday.

The Dow still hasn’t returned to record territory, though it’s only about 230 points away after moving lower by only 0.22% (or 59 points) today to 26,597.05.

Some of the biggest news for the market came after the bell when two tech giants reported. First of all, shares of Facebook are up more than 9% afterhours, as of this writing, after the social media pioneer beat on both the top and bottom lines. However, that excludes $3 billion in legal expenses from a FTC inquiry on privacy. However, investors don’t seem too worried about it.

The other big report after the close was good old Microsoft, which also outperformed as cloud revenue soared. Its up about 3.5% afterhours as this is being written.

And tomorrow Amazon comes to the plate, which means  three of the five FAANGs will have reported by the end of the week. That should give us a pretty good reading on tech.

Stocks are really taking advantage of lowered expectations so far this earnings season. The FB and MSFT reports today suggest the trend will continue. Hopefully, the new highs reached yesterday will also develop into a trend as we make our way through the remaining reports. 

Today's Portfolio Highlights:

Surprise Trader:
This portfolio can move pretty quickly during earnings season. For example, PayPal (PYPL) wasn’t even on Dave’s radar earlier this week or even yesterday. But all of a sudden, this Zacks Rank #2 (Buy) online payment solutions staple popped up on his screen just a few hours before its report. Given the good news from Ebay last night, the editor decided to make a quick turnaround and add PYPL on Wednesday with a 12.5% allocation. The stock has a positive Earnings ESP of 1.06% for the coming quarter and is part of a space (Internet – software) in the top 13% of the Zacks Industry Rank. Read more about this new buy in the full write-up.

Technology Innovators: Semiconductors are hot right now, which should bode well for the electronics and components that surround them. That’s the idea behind today’s addition of Knowles Corp. (KN), which supplies advanced micro-acoustic, specialty components and human interface solutions. Brian Bolan bought the company this morning… just hours before its quarterly report. And that decision paid off! KN beat on both the top and bottom line after the bell, sending shares higher by nearly 3% afterhours, as of this writing. Learn more about this new addition in the full write-up.

Home Run Investor: The earnings season, thus far, is telling Brian Bolan to get more aggressive, as the market may be set up for a continued run higher. Therefore, he added OneSpan (OSPN) on Wednesday, which is a Zacks Rank #1 (Strong Buy) software services company that designs and develops security software and e-signature solutions. The company says that 80% of its revenue comes from well-known blue chip brands. Its earnings history is “feast or famine”, which makes it a bit riskier than usual. However, the editor thinks it is set up for another big beat in its upcoming report early next month. In addition, earnings estimates for 2020 are more than 30% better than 2019, while steady margins suggest it could jump higher on good news. Read the complete commentary for more on this new pick and be ready for another addition this week to get the portfolio up to 15 names.

All the Best,
Jim Giaquinto

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