Is the re-opening trade now at risk? A spike in coronavirus cases has caused a selloff in companies that depends on the economy reopening. But optimists, particularly those who are still kicking themselves for missing the March lows, may see this recent decline as a buying opportunity.
Stocks took a beating on Friday, closing at sessions lows, driven by a record number of new nationwide COVID-19 cases being reported. Rising coronavirus cases in states like Texas, where 5,996 new coronavirus cases were reported on Thursday, (beating Wednesday’s record of 5,551), has forced many governors to rethink, and in some cases, backtrack on reopening their economies. Several other states, including Florida and Arizona, are dealing with a similar coronavirus increases which pressured the three major stock market averages.
On Friday the Dow Jones Industrial Average closed down 730.05 points, losing 2.8% to 25,015.55. The S&P 500 index lost 74.71 points, or 2.4%, to close at 3,009.05, pressured by a 4.33% decline in the S&P’s financial sector. Seemingly, the market is trying to assess the implication of the Fed’s bank stress tests — the outcome of which limited bank’s ability to pay dividends and perform stock buybacks. Meanwhile, the tech-heavy Nasdaq Composite Index fell 2.6%, losing 259.78 points to close at 9,757.22.
The rising coronavirus cases, coupled with several states reversing some reopening measures after months of lockdowns, has now put into question whether the expected V-shaped recovery is really possible. After the impressive 40% bounce from the March bottom, investors may now adopt a “risk-off” mode going forward since there is now some evidence that consumers are losing confidence. That, in turn, will add more pressure on the Fed to provide more stimulus. For the week, the Dow lost 3.3%, the S&P 500 gave up 2.9%, while the Nasdaq lost 2%.
With the excessive optimism seemingly evaporating, the market will be driven by a battle of positive and negative headlines. Here are the stocks that I’ll be watching this week.
Micron (MU) – Reports after the close, Monday, Jun. 29
Wall Street expects Micron to earn 76 cents per share on revenue of $5.31 billion. This compares to the year-ago quarter when earnings came to $1.05 per share on revenue of $4.79 billion.
What to watch: Will the real Micron please stand up? Shares have, arguably, lacked direction so far this year. While the stock is up 8% in three months, they’ve also fallen 12% over the past six months. And in the past thirty days, though the stock has risen 6%, they’ve fallen 5% over the past week. And when factoring that the shares are up nearly 50% from their March low, the one thing that seems constant is the rate of volatility. Due to the pandemic, Micron’s revenue is down some 30% in the first half of 2020, while its profit margins have deteriorated. The good news is, improved DRAM pricing could still re-ignite Micron’s performance in the second half of the year, driven by increased demand for chips to power cloud computing, AI, and 5G. For that to matter, on Monday the company must guide in a manner that suggests the boom-and-bust cyclicality of the memory chip business will tilt towards growth.
FedEx (FDX) – Reports after the close, Tuesday, Jun. 30
Wall Street expects FedEx to earn $1.90 per share on revenue of $16.54 billion. This compares to the year-ago quarter when earnings came to $5.01 per share on revenue of $17.81 billion.
What to watch: Can FedEx reverse its declining revenue and earnings trends? Assuming the company earns the projected $1.90 per share, that would mark a year-over-year profit decline of 62%. This comes on the heels of a 53% profit decline in the third quarter. And FedEx management has been somewhat bearish regarding growth prospects in the quarters ahead. Over the past few years, the company’s fundamentals have taken a hit, driven by not only global economic weakness, but also from a reduction of business FedEx receives from Amazon (AMZN), which has essentially become a competitor. The company is now adjusting to the coronavirus pandemic which has further devastated its business. And it’s unclear when the things will recover. On Tuesday investors will want to hear some optimism, namely about profitability improvements within FedEx’s Ground segment.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.