Strong Jobs Report Abates Fears of Recession

Last week, the jobs report was released. Economists were expecting an additional 258,000 new jobs added last month. The Labor Department’s report revealed that the U.S. economy has had robust job growth last month adding over 500,000 jobs in July.

The exceedingly strong numbers of the report diminished concerns about the United States entering a recession. While this optimistic report bodes well for economic growth, it certainly does not address inflation.

However, it does change market sentiment which had been intensely focused on the last two GDP reports. On July 28 the government released the advance estimate of the second quarter GDP. The report revealed that the GDP had decreased at an annual rate of 0.9% during the second quarter of 2022.

Earlier this year the BEA reported a decrease in the first quarter GDP of 1.6%. The widely accepted definition of a recession is an economic contraction over two consecutive quarters. Continue reading "Strong Jobs Report Abates Fears of Recession"

3 Stocks Trading Near 52-Week Highs

So far this year, the stock market has flashed more red signs than green due to various macroeconomic and geopolitical concerns. The immense volatility weighed heavily on equities and government bond yields.

The CBOE Volatility Index (VIX) gained 29.5% year-to-date.

However, the major stock indexes rose in the last trading session to end their best month since 2020, slashing some losses from a gloomy first half of the year. The S&P 500 gained 9.1% in July, while the Dow Jones Industrial Average rose 6.7%, reflecting their strongest month since November 2020. The Nasdaq Composite rose 12.4%, marking its best month since April 2020.

Chris Zaccarelli, chief investment officer for Independent Advisor Alliance, said, “We are seeing a relief rally in the stock market, as pessimism reached extreme levels, and as longer-term interest rates have been coming back down.”

Optimistic expectations from the upcoming earnings releases have also encouraged investors to take a breather from the idea of a slowing economy and further interest rate hikes.

Occidental Petroleum Corporation (OXY), Molina Healthcare, Inc. (MOH), and Greif, Inc. (GEF) are hovering near their 52-week highs and could be the ideal additions to your watchlist now given their strong fundamentals and momentum. Continue reading "3 Stocks Trading Near 52-Week Highs"

An Oil Stock to Ride Out the Looming Recession

At the moment, the oil market is much like the famous quote from the beginning of “A Tale of Two Cities.”

It is a tale of two markets: the futures market for oil (controlled by Wall Street) and the physical market, which reflects the real-world demand for oil. Both factor in many dynamics inputs, notably whether we’re actually heading into a recession.

Which Tale to Believe?

The price of oil dropped by about $15 a barrel in a few days in the futures market, thanks to recession worries. That pushed the global benchmark Brent crude oil price below $100 per barrel for the first time since April.

However, in the real world, there is no sign of a slowdown in demand for oil. In fact, it’s quite the opposite.

Premiums for the immediate delivery of oil are at record levels. For example, Nigerian Qua Iboe crude oil was offered at $11.50 a barrel above Brent, while North Sea Forties crude was bid at Brent-plus-$5.35—both all-time highs!

Here in the U.S., WTI-Midland and WTI at East Houston traded in June at a more than a $3 premium to U.S. crude futures, the highest in more than two years. And though both grades of oil have since edged off those highs, they are still trading more than 60% higher than at the start of June. Continue reading "An Oil Stock to Ride Out the Looming Recession"

4 Value Stocks for Times of Uncertainty

Ahead of the Fed’s July rate hike, markets seem volatile. Given the viability of value investing during such times, quality value stocks Intel (INTC), Micron Technology (MU), AbbVie (ABBV), and Cisco Systems (CSCO) could be solid picks to navigate a volatile environment.

The Fed is yet to announce its next rate hike for July. Since inflation soared to a record 9.1% in June, another 75 bps rate hike seems imminent. Consequently, market volatility is rife, as is evident from the CBOE Volatility Index’s 35.7% year-to-date gains.

Amid such circumstances, value investing has a history of outperforming its growth counterparts. Over the past 40 years, a significant portion of value returns has come during rate hike periods.

Furthermore, Bank of America Corp’s (BAC) chief quant Savita Subramanian prefers value over growth, and the bank expects value stocks to outperform growth in the coming years.

Therefore, fundamentally sound value stocks Intel Corporation (INTC), Micron Technology, Inc. (MU), AbbVie Inc. (ABBV), and Cisco Systems, Inc. (CSCO) could be profitable investments amid the ongoing uncertainty.

Intel Corporation (INTC)

An industry leader, INTC designs, manufactures, and sells computer products and technologies worldwide. It operates through CCG; DCG; IOTG; Mobileye; NSG; PSG; and All Other segments. INTC creates world-changing technology to enable global progress.

On July 12, 2022, INTC launched the first set of its open-source AI reference kits, which were built in collaboration with Accenture plc (ACN). These kits are designed to make AI more accessible to organizations in the on-prem, cloud, and edge environments and are available on GitHub. The company is expected to release a series of open-source AI reference kits over the next year, which should bolster its revenues.

INTC’s Datacenter and AI segment revenue increased 22.1% year-over-year to $6.03 billion for the first quarter ended April 2, 2022. Its net income came in at $8.11 billion, up 141.4% year-over-year, while its EPS came in at $1.98, up 141.5% year-over-year.

INTC’s forward EV/S of 2.18x is 22.1% lower than the industry average of 2.80x. Its forward P/S of 2.23x is 22.5% lower than the industry average of 2.87x.

Analysts expect INTC’s revenue to grow 2.6% year-over-year to $76.43 billion in 2023. Its EPS is expected to grow 2% year-over-year to $3.49 in 2023. It has surpassed EPS estimates in each of the trailing four quarters. Over the past month, INTC has gained 7.6% to close the last trading session at $40.61.

INTC’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which indicates a Buy in this proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

INTC has an A grade for Value and a B grade for Quality. Within the B-rated Semiconductor & Wireless Chip industry, it is ranked #24 out of 94 stocks. Click here to learn more about POWR Ratings.

Micron Technology, Inc. (MU)

MU designs, manufactures, and sells memory and storage products worldwide. The company operates through four segments: Compute and Networking Business Unit; Mobile Business Unit; Storage Business Unit; and Embedded Business Unit.

On July 6, 2022, MU announced the commercial and industrial channel partner availability of Micron DDR5 server DRAM to support the industry qualification of next-generation Intel and AMD DDR5 server and workstation platforms. The product’s commercial availability should add to the company’s revenue stream.

On June 30, 2022, MU’s President and CEO Sanjay Mehrotra, said, “We are confident about the long-term secular demand for memory and storage and are well positioned to deliver strong cross-cycle financial performance.”

For the third quarter ended June 2, 2022, MU’s revenue increased 16.4% year-over-year to $8.64 billion. Its non-GAAP net income came in at $2.94 billion, up 35.3% year-over-year. Also, its non-GAAP EPS came in at $2.59, up 37.8% year-over-year.

In terms of its forward EV/S, MU’s 2.09x is 25.4% lower than the industry average of 2.80x. Its forward P/S of 2.22x is 22.6% lower than the industry average of 2.87x.

MU’s revenue is expected to come in at $31.38 billion in 2022, representing a 13.2% year-over-year rise. The company’s EPS is expected to increase 41.3% year-over-year to $8.56 in 2022. In addition, it surpassed EPS estimates in each of the trailing four quarters. Over the past month, the stock has gained 12% to close the last trading session at $63.64.

MU has an overall B grade equating to a Buy in the POWR Ratings system. It also has an A grade for Value and a B for Quality.

MU is ranked #39 in the Semiconductor & Wireless Chip industry. Click here to learn more about POWR Ratings.

AbbVie Inc. (ABBV)

ABBV discovers, develops, manufactures, and sells pharmaceuticals worldwide. The company functions across several key therapeutic areas like immunology, oncology, neuroscience, eye care, virology, and gastroenterology.

In July, ABBV announced Health Canada’s approval for its RINVOQ® (upadacitinib, 15 mg), an oral, once-daily selective and reversible JAK inhibitor for the treatment of adults with active ankylosing spondylitis (AS). This is expected to expand the company’s portfolio of treatment options for Canadians.

On July 20, 2022, ABBV and iSTAR Medical SA announced a strategic transaction to develop and commercialize iSTAR Medical’s MINIject® device, a minimally invasive glaucoma surgical device. The strategic alliance is expected to be a step forward in the company’s innovation in glaucoma treatment.

ABBV’s net revenues for the first quarter ended March 31, 2022, came in at $13.54 billion, up 4.1% year-over-year. Its net earnings came in at $4.49 billion, up 26.4% year-over-year. Moreover, its adjusted EPS came in at $3.16, up 9.3% year-over-year.

ABBV’s forward EV/EBITDA of 10.39x is 22.8% lower than the industry average of 13.46x. Its forward P/S of 4.38x is 5% lower than the industry average of 4.61x.

Analysts expect ABBV’s revenue to increase 6.2% year-over-year to $59.61 billion in 2022. Its EPS is expected to increase 9.8% year-over-year to $13.94 in 2022. It surpassed EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 26.3% to close the last trading session at $147.75.

It’s no surprise that ABBV has an overall A rating, equating to a Strong Buy in the POWR Ratings system. In addition, it has an A grade for Quality and a B for Growth and Value.

ABBV is ranked #9 out of the 167 stocks in the Medical – Pharmaceuticals industry. Click here to learn more about POWR Ratings.

Cisco Systems, Inc. (CSCO)

CSCO designs, manufactures, and sells Internet Protocol-based networking and other products related to the communications and information technology industry in the Americas, Europe, the Middle East, Africa, the Asia Pacific, Japan, and China.

On July 21, 2022, CSCO launched a new Webex Wholesale Route-to-Market for Service Provider partners to address the evolving needs of SMBs. This new model is expected to offer greater customer satisfaction for CSCO and its partners.

In June, CSCO launched AppDynamics Cloud, which delivers power and usability in a single, intuitive interface. AppDynamics Cloud supports cloud-native, managed Kubernetes environments on Amazon Web Services (AWS) and is expected to expand to Microsoft Azure, Google Cloud Platform, and other cloud providers in the future.

CSCO’s total revenue increased marginally year-over-year to $12.84 billion for the third quarter ended April 30, 2022. Its net income came in at $3.04 billion, up 6.3% year-over-year, while its EPS came in at $0.73, up 7.4% year-over-year.

CSCO’s forward EV/EBITDA of 8.96x is 28.7% lower than the industry average of 12.55x. Its forward EV/EBIT of 10.01x is 35.5% lower than the industry average of 15.54x.

CSCO’s revenue is expected to increase 3.3% year-over-year to $52.86 billion in 2023. Its EPS is expected to grow 5.4% year-over-year to $3.53 in 2023. Also, it surpassed EPS estimates in each of the trailing four quarters. The stock has gained marginally over the past month to close the last trading session at $44.58.

CSCO’s overall B rating equates to a Buy in the POWR Ratings system. Also, it has an A grade for Quality.

CSCO is ranked #8 out of 53 stocks in the Technology – Communication/Networking industry. Click here to learn more about POWR Ratings.


About the Author

Riddhima Chakraborty is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries. Riddhima is a regular contributor for StockNews.com.

Will Rate Hikes Lead to Recession?

Although trading last week was limited to four trading days due to a holiday weekend gold had a deep and severe price decline.

Gold lost approximately $74 in trading this week opening at approximately $1814 on Tuesday and settling at $1741 Wednesday. Last week’s price decline resulted in gold devaluing by 4%.

The Friday before last, gold opened above and closed below a support trendline that was created from two higher lows. The first low occurs at $1679 the intraday low of the flash crash that occurred in mid-August 2021. The second low used for this trendline occurred in the middle of May when gold bottomed at $1787.

Daily Gold Futures Chart

Gold closed just below that trendline one week ago, however it was Tuesday's exceedingly strong price decline of $50 that accounted for two-thirds of last week’s price decline and resulted in major technical chart damage.

Daily DX Futures Chart

The primary force that moved gold substantially lower last week was dollar strength. The dollar index gained well over 2% last week accounting for over half of the price decline in gold.

Dollar strength was a result of traders and investors focusing on recent and future interest rate hikes by the Federal Reserve. Since March the Federal Reserve has raised rates on three occasions with each rate hike having a higher percentage increase than the last. The Fed raised rates by 25 basis points in March, 50 basis points in May, and 75 basis points in June.

Friday’s jobs report was forecasted to show that 250,000 jobs were added to payrolls last month. The actual numbers came in well above expectations with 327,000 jobs added last month. The unemployment level remained at 3.6%.

The fact that the actual jobs report came in above expectations strengthened the hand of the Federal Reserve to continue to raise interest rates substantially this month.

It is highly anticipated that the Federal Reserve will enact another 75-point rate hike at the July FOMC meeting. Before the Federal Reserve raised interest rates in March the fed funds rate was just ¼% or 25 basis points.

Currently, the interest rate set by the Federal Reserve is at 1 ½ % to 1 ¾. This would take the interest level set by the Federal Reserve to 2 ¼% to 2 ½%.

According to the CME’s FedWatch tool, there is a 93% probability that the Federal Reserve will raise rates once again by 75 basis points this month.

However, there are three more times that members of the Federal Reserve will convene for an open market committee meeting which leaves the door open for additional rate hikes. Because the Federal Reserve is data-dependent the number and size of the rate hikes will be based upon whether or not there is a substantial decrease in inflationary pressures.

That being said, it is most likely that this week’s CPI report will not have a dramatic impact on the Federal Reserve’s decision to raise rates as Chairman Powell and other Fed members have stated that the Federal Reserve will aggressively raise rates at the July FOMC meeting.

For those who would like more information simply use this link.

Wishing you, as always good trading,
Gary S. Wagner
The Gold Forecast