Stock Market Investing Action Plan: Blue Chips, China Stocks Constructive As Dow Eyes 35,000

A positive, if bumpy, week left the stock market’s uptrend intact. The Dow industrials are now pursuing the 35,000 level as an increasing number of blue chips sketch constructive-looking charts. And China-based stocks have also proved a bright spot.  Plenty of clouds remain heaped on the horizon, with companies announcing new rounds of layoffs and energy markets bracing for a week of heavy change. On top of all that the Fed is expected to vote for another steep rate hike mid-month, leaving the crystal ball on year-end market behavior more than a little cloudy.

Stocks To Watch: 5 Blue Chips Near Buy Points

The Dow Jones Industrial Average has led the current market rally, reflecting strength in industrials, financials and medicals. Recovering demand for air travel is helping to hoist Boeing (BA) out of its long consolidation and into a buy zone. Goldman Sachs (GS) is forging a handle in a yearlong base. Caterpillar (CAT) is just below a buy point, as demand ramps up from the recent series of federal spending programs. Chevron (CVX) is also just below a buy point, as it prepares to boost U.S. shale output by 15%. Meanwhile, UnitedHealth (UNH) has rebounded bullishly from a quick test of support at its 200-day moving average, trading less than 5% below its record high from Oct. 31.

Economic Calendar: A Quiet Week Before The Storm

The economic calendar quiets down in the coming week but a few reports will help shape the outlook. Friday’s producer price index, out at 8:30 a.m. ET, will get a close look, and not just for the headline wholesale inflation figure, which has been coming down nicely. The report also includes medical services cost trends that don’t play into the CPI, since the latter report only reflects out-of-pocket consumer costs, not those funded by employers.

Market Rally Resilient; What To Do Now

Medical services inflation is a big part of the inflation index that Fed chair Jerome Powell says holds the key to the outlook: the PCE price index for core services minus housing. Jobless claims, out Thursday at 8:30 a.m., are also a growing focus. While new claims slipped in the latest week, the number of people who continue to claim benefits topped 1.6 million, as the recent steady rise continued. Investors also will be on guard for a downside surprise for the Institute for Supply Management’s nonmanufacturing survey index, out Monday at 10 a.m., after the factory survey index slid into contractionary territory.  

Stock Market Perspective: Rally Intact; Distribution Remains Low

A second straight weekly advance for the Nasdaq composite and the S&P 500 kept the market’s uptrend intact. Distribution days remain low: one for each index. The S&P 500 faces some resistance around 4,100. China stocks are also set to test resistance. The iShares MSCI China ETF (MCHI) is up almost 35% since Oct. 31 and sitting less than 3% below its 200-day line.

2022 Market Review: The Good, The Bad And The Cyclicals

Chevron led the five Dow industrials posting gains of more than 10% through November. Chevron has rallied 54%. Merck (MRK) and Amgen (AMGN) were up more than 42% and 25%, respectively. Travelers (TRV) came in with a near-20% climb. And a big two-month rebound gave Caterpillar an almost 14% lift. At the bottom of the list, Intel (INTC) and Salesforce.com (CRM) are nursing 42% declines. Not quite half the industrials are off more than 10% for the year, with the index down not quite 6%. Given its 1% average gain in postelection Decembers since 1950, the market’s most senior index will need to muster some fight if it wants to shift 2022 into the win column.

Energy Markets: Oil Braces For OPEC Vote, EU Embargo

Oil prices swung a little wild in the past week, before posting their first weekly advance in a month. Oil dropped 21% from Oct. 10 to Nov. 25, despite a 2 million barrel-per-day production cut by the Organization of Petroleum Exporting Countries at the start of October. Like other industry groups, OPEC remains fundamentally concerned about possible recession. In addition, while the media obsess over a possible price cap on Russian oil, OPEC certainly has an eye on the more than half-million barrels about to be redirected onto global markets, covertly or otherwise, when the European Union’s Russia oil ban takes full effect on Monday. 

The potential impact on stocks from Tuesday’s runoff Senate election in Georgia is unclear. Markets rallied as results rolled in from Georgia’s last senate runoff, when Democrats Raphael Warnock and Jon Ossoff overtook incumbent Republicans Kelly Loeffler and David Perdue, giving Democrats both Senate seats in Georgia and control of the upper chamber of Congress, in January 2021. This election could widen slightly the Democrats’ control of the Senate, providing the White House a nominal increase in maneuvering room. Or it could leave the Senate split 50-50, with the Democrats retaining control via the tiebreaking vote of Vice President Kamala Harris. Warnock’s opponent, Republican challenger Herschel Walker, has made up for his lack of political skill with vast financial backing from his party.

December Stock Market: Positive, But Not Positive Enough

The final month of 2022 is underway with little hope of a year-end market recovery. That makes it the fifth worst YTD return for the S&P 500 since World War II, according to Sam Stovall at CFRA. Only 1973, 1974, 2002, and 2008 saw deeper declines. The S&P 500 has advanced in 53 of the 71 Decembers since 1950, the Stock Trader’s Almanac tells us, including a 4.4% gain last year. Its best was an 11.2% rally in December 1991. During all Decembers since 1945, Stovall says, the S&P 500 recorded an average price return of 1.64%, rising 77% of the time. Decembers during midterm election years have been slightly weaker, returning 1.35% and rising 68% of the time.

S&P 500 Tracker: It’s Not Only Oil Stocks 

Among S&P 500 stocks, oil and gas stocks held 17 of 20 of the year’s largest advances through November. Occidental Petroleum (OXY) stood head and shoulders above all with its 138% upsweep. EQT (EQT), Marathon Petroleum (MPC) and Hess (HES) all scaled up more than 90%. Drug distributors McKesson (MCK) and Cardinal Health (CAH) rose about 53% each to take top 20 spots. Fertilizer maker CF Industries (CF) also made the cut, with a cool 50% gain. For November, arts and crafts site Etsy (ETSY) was a big winner, up more than 40%.

Upcoming Stock Market Earnings

Tuesday:

AutoZone (AZO) releases fiscal first-quarter results on Tuesday. Analysts see a 17% slowdown in EPS and a 5.3% revenue gain. That would end a long string of quarterly earnings gains. Shares are extended, up 8% from a breakout above a 2,362.34 entry in October.

Casey’s General Stores (CASY) reports fiscal second-quarter 2023 earnings after the market closes Tuesday. EPS for the convenience store chain is expected to grow 22% to $3.16. Revenue is forecast to increase 17% to $4 billion. Casey’s is at the top of a buy range above a 224 entry in a cup base.

 AeroVironment (AVAV) earnings are expected to plummet 74% to 20 cents per share on Tuesday afternoon. Sales for the unmanned aircraft maker are seen falling 6.6% to $113.9 million.

Dave & Buster’s Entertainment (PLAY) reports Q3 results late Tuesday. The dining and gaming chain’s earnings  are predicted to nose-dive 90% to 2 cents per share while revenue leaps 48% to $471 million.

Early Tuesday, Signet Jewelers (SIG) is likely to deliver a 79% EPS decline to 30 cents on a 4% sales decrease to $1.47 billion.

Wednesday:

Thor Industries (THO) announces first-quarter earnings Wednesday before the market opens. Wall Street forecasts the RV camper and emergency vehicle manufacturer earning $1.62 per share, a 62% drop compared to last year. Sales are expected to fall 28% to $2.8 billion. Thor is below a 93.24 buy point in a cup-with-handle base.

Analysts predict Ollie’s Bargain Outlet (OLLI) earnings will jump 17% to 40 cents per share for its Wednesday morning report. The discount retail chain’s revenue is seen rising 12% to $429 million.

Thursday:

Costco Wholesale (COST) reports its first quarter results Thursday after market close. The wholesaler’s earnings are predicted to climb 5% to $3.12 per share on 15% sales growth to $58.36 billion.

Late Thursday, Lululemon Athletica (LULU) should post a 20% EPS increase to $1.95 on a 24% revenue jump to $1.8 billion.

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