(Please enjoy this updated version of my weekly commentary from the POWR Value newsletter).
Stocks rose sharply on Tuesday following Monday's steep losses and the worst trading session for the S&P 500 since May 12. Investors were essentially buying the dip in the aftermath of Monday's sell-off. Value stocks rebounded the most after falling the hardest on Monday.
The Dow jumped 549 points, recovering from its steepest one-day rout since October.
The market was up again on Wednesday as fears surrounding the COVID-19 Delta variant are fading. This means investors have more confidence in the continued economic recovery. Strong earnings reports also helped bolster the markets. Coca-Cola (KO), Verizon (VZ), and Johnson & Johnson (JNJ) all reported strong numbers.
Stocks rallied on Thursday to close a rocky day of trading, with growth stocks serving as the day's winners. A jump in jobless claims put a slight dent in value stocks. Weekly jobless claims rose 51,000 to 419,000, the highest level in two months. Claims were expected to fall to 350,000. Earnings also kept beating estimates by significant margins.
The continued economic optimism helped stocks to rise for a fourth straight session on Friday. All three major indexes closed at record levels, with the Dow Jones closing above 35,000.
This represents a symbolic win after the index fell below 20,000 last year. Once again, upbeat earnings reports overshadowed any worries surrounding the Delta variant.
The markets opened lower today to start the week but soon recovered to finish the day up. This was in spite of news that relations between the U.S. and China continued to fray. Plus, Chinese regulators are continuing to crack down on its U.S.-listed companies.
Market Outlook
Wall Street has now completed a five-session winning streak, which seemed improbable last Monday with concerns over the Delta variant. Investors have put last Monday's sell-off in the rear-view mirror, but should we be concerned?
I believe the rising cases are cause for some concern, as multiple physicians have told me that it's time to start wearing a mask again indoors.
The death rates for that those who have gotten vaccinated are slim. But according to physicians in Israel, the effectiveness of the vaccines against the Delta variant is lower than previously thought.
Where I see the biggest issue is the labor shortage. If the variant continues to spread, schools could possibly close, though I don't suspect businesses would.
If schools close, parents of children under 12 would likely stay home, impacting the labor market. But there is no reason to panic. We are nowhere near where we were in the Spring of 2020. Hospitalizations remain low, and the vaccines are helping to stem the tide.
Still, another bout of volatility to the downside may pop up again as cases continue to rise, but it's best to stay the course. My concerns are for general hiccups, not a significant economic pullback.
Overall, the underlying economy is well-positioned for more growth, and consumers are still sitting on excess savings. Plus, with rates so low, stocks are the best place to be.
This week, I have my eyes on earnings from big tech companies such as Apple (AAPL), Facebook (FB), and Alphabet (GOOGL), and the Federal Reserve's policy meeting on Wednesday. Plus, we should get the first reading on U.S. second-quarter GDP on Thursday.
The economy is forecasted to have expanded at an 8% annualized pace during the April-June period.
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All the Best!
David Cohne
Chief Value Strategist, StockNews
Editor, POWR Value Newsletter
SPY shares were trading at $436.63 per share on Tuesday afternoon, down $4.39 (-1.00%). Year-to-date, SPY has gained 17.55%, versus a % rise in the benchmark S&P 500 index during the same period.
About the Author: David Cohne
David Cohne has 20 years of experience as an investment analyst and writer. He is the Chief Value Strategist for StockNews.com and the editor of POWR Value newsletter. Prior to StockNews, David spent eleven years as a consultant providing outsourced investment research and content to financial services companies, hedge funds, and online publications. David enjoys researching and writing about stocks and the markets. He takes a fundamental quantitative approach in evaluating stocks for readers.
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