Stocks didn’t close at their intraday troughs on Friday, but “lower lows” is anything but an encouraging sign, particularly as the economy attempts to recover from a pandemic that has caused tens of millions of Americans to be out of work.
Over the past few weeks I’ve talked about the massive disconnect that exists between the real economy and the stock market. With the stock market falling some 5% over the past month, it now appears — at least to some observers — that an alignment forming. And this suggests that both the economy and the stock market are waiting for more fiscal stimulus before both can march higher. This puts Congress at the center of the debate, where Democrats and Republicans have shown little-to-no progress on the next stimulus package, which has frustrated investors.
Stocks closed lower Friday, extending their third-straight week of declines. The Dow Jones Industrial Average lost 244.56 points or 0.9% to close at 27,657.42. The S&P 500 index was down by 1.1%, or 37.54 points, to close at 3,319.47, while the Nasdaq Composite Index fell 116.99 points, 1.1%, to close at 10,793.28. As it stands, the Dow is now down about 3% month-to-date, while the S&P500 index — which closed below its 50-day moving average — was down 5%. The Nasdaq has suffered the most, losing 8.34% since its peak earlier this month.
Obviously, investors are getting impatient. The question is, when will the government step up? And given the modest economic recovery seen over the past three months, what is (or will be) the catalyst that will force government intervention? There was a point when many believed the market had shot up too fast and attributed (rightly so) much of the gains to actions by the Federal Reserve and the Treasury. With still limited clarity on a vaccine and uncertainty surrounding the presidential election, there are a tons of unknowns that can drive stocks in either direction.
In the meantime, here are this week’s names to keep an eye on.
Aurora Cannabis (ACB) – Reports after the close, Tuesday, Sept 22
Wall Street expects Aurora to report a per-share loss of $6.70 on revenue of $54.41 million. This compares to the year-ago quarter of 0 cents per share on revenue of $74.98 million.
What to watch: Aurora stock is down 73% year to date, including a loss of 32% just in the past thirty days. And when expanding that horizon over the past one year and three years, the shares are down 90% and 74%, respectively. Investors want to know whether pot can be profitable. Vivien Azer, analyst at Cowen and Company believes political roadblocks are the biggest factor impacting the industry. “We believe 2020 will be remembered more for symbolic votes on cannabis than for any substantive change in the law,” Azer noted last week. “Despite broad House support for various cannabis bills, Senate Majority Leader Mitch McConnell is an obstacle that we do not believe can be overcome in the next several weeks.” This would seem an ominous sign for Aurora and the entire industry which has suffered through gross margins weakness, along with high operating costs as the battle over legalization persists.
Stitch Fix (SFIX) – Reports after the close, Tuesday, Sept 22
Wall Street expects Stitch Fix to lose 16 cents per share on revenue of $414.54 million. This compares to the year-ago quarter when earnings came to 7 cents per share on revenue of $432.15 million.
What to watch: Shares of Stitch Fix have rebounded sharply, surging 110% in the past six months, suggesting investors are not as worried about the company’s ability to survive the weakened economy. The company’s Stitch Fix’s direct-buy concept is now seen as a significant competitive advantage amid the stay-at-home restrictions. What’s more, its data-centric business strategy is seen capable of driving an acceleration in revenue growth over the next several quarters. For the stock to keep rising, analysts on Tuesday will want to see revenue growth acceleration, along with improved profit margins. Investors will closely monitor the company’s international expansion efforts to assess long-term growth prospects and profitability.
Accenture (ACN) – Reports before the open, Thursday, Sept. 24
Wall Street expects Accenture to earn $1.73 per share on revenue of $10.89 billion. This compares to the year-ago quarter when earnings came to $1.74 per share on revenue of $11.06 billion.
What to watch: After a slow start to the year, Accenture shares have come roaring back over the past six months, surging some 50%, outperforming the 32% rise of the S&P 500 index in that span. Questions were raised about the prospect of discretionary IT spending, which some analysts believed would take more than a year to sort out. But Accenture seems to believe the recovery has already begun, or at least, is aiming to get ahead of it. The company recently announced the formation of Accenture Cloud First, spending some $3 billion over three years. The company says the initiative aims to help clients across all industries rapidly become “cloud first” businesses and accelerate their digital transformation. Analysts will want to know how to factor this $3 billion investment into their earnings projections.
Costco (COST) – Reports after the close, Thursday, Sept. 24
Wall Street expects Costco to earn $2.81 per share on revenue of $52.03 billion. This compares to the year-ago quarter when earnings came to $2.69 per share on revenue of $47.5 billion.
What to watch: Expectations are high heading into Costco’s earnings report as many analysts project sustained market share gains for the nation’s largest warehouse retailer. Notably, this is despite what has been weak consumer data, showing a double-digit percentage decline in retail sales. Costco’s “buy in bulk” business profile has made it a standout during the pandemic as consumers rushed to stockpile on household products such as toilet paper. Its membership business model continues to receive praise. Not only is Costco still finding ways not to grow its membership total, the company also getting its club members to spend more. But can this continue with so many Americans out of work?
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