Stock Market Investing Action Plan: Patience, Marbled With Optimism

Expectations were not high for the week in which the stock market would set up its stance ahead of the final interest rate hike in a turnabout policy year for the Fed. But the outcome was reasonably mild. Energy stocks are showing some stress, although the fundamentals driving oil and natural gas prices have yet to improve. Cracks appearing in the inflation tableau are stirring some optimism. Rising auto inventories, the ongoing spinout of federal Inflation Reduction Act spending and the wrap up of midterm election uncertainties all drive some positive elements onto the market radar as a tough year comes to an end.

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Stocks To Watch: Infrastructure Plays Look Strong

Heavy equipment makers and retailers as well as materials firms are setting up or flashing buy signals in a choppy stock market rally. They are seen as beneficiaries from U.S. infrastructure spending in the coming years. Dow giant Caterpillar (CAT) is consolidating near a buy point after a big run up, finding support at the 21-day line. United Rentals (URI) also is near a buy point, already flashing an early entry. Terex (TEX) has been consolidating for a few weeks after a strong advance. That could be seen as a handle to a big, long base. DeereDE is well extended from a breakout, but it’s trading tightly, perhaps offering existing holders to add a few shares. Martin Marietta Materials (MLM), provider of crushed stone and other aggregates, is working on a cup-with-handle bottoming base.

Economic Calendar: Fed’s Year-End Party

An epic week for economic policy starts with the consumer price index, out Tuesday at 8:30 a.m. ET. The CPI is expected to continue to moderate, with the annual inflation rate easing to 7.6% from 7.7%, while the core rate, excluding food and energy, slips to 6.2% from 6.3%. Even a more tepid reading than that won’t avert a 50-basis-point rate hike a day later. The good new is that there’s little chance of a bigger hike, even if inflation surprises to the upside.

The Federal Reserve policy statement is due on Wednesday at 2 p.m. But all of the suspense surrounds the rate policy outlook, which will be clarified in new economic projections also to be released at 2 p.m. and in Fed chair Jerome Powell’s news conference shortly after. The latest batch of projections in September showed the Fed’s key rate peaking next year at 4.6%. Since then, Powell has indicated rates will have to surpass that level. Markets are currently pricing in a terminal rate of about 5% in May 2023. Fed rate projections of 5.25% or higher might deliver a gut punch to risk appetites.

The big week continues Thursday with retail sales for November out at 8:30. After a strong October, the question is whether households did their holiday shopping early or whether consumers are feeling more festive than downbeat surveys suggest.

Economy, S&P 500 Face Hard Landing — Unless The Fed Does This

Stock Market Perspective: A Broad-based Holding Pattern

Stocks set up in a fairly well supported holding pattern awaiting the outcome of the Federal Open Market Committee decision on Wednesday. A fairly optimistic finish to a worrisome pullback saw the Dow industrials rebound neatly off short-term support at its 21-day exponential moving average, while the S&P 500 regained that line after cutting below it. The Nasdaq composite declined for four days, then bounced off its 50-day average, ending narrowly above its 21-day line. The 200-day line, right around the 4,000 level is the next hurdle facing the S&P 500. The index is less than 2% from the mark. The Dow is just a half percent below 34,000. The Nasdaq remains a full 7% below its 200 day line, which sits just below 12,000.

S&P 500 Tracker: Soup’s On As Utilities Diverge

A Kansas-based utility, Evergy (EVRG), scored the S&P 500’s biggest gain for the week ended Dec. 9, up more than 8% for the week, despite a handful of analyst downgrades at the end of November. Another utility, the smaller NRG Energy (NRG), chalked up the week’s heaviest loss. It toppled 22% after announcing it would buy Vivint Smart Home in a $2.8 billion deal. The ever-humble Campbell Soup (CPB) also a winner, warming nearly 4% as a fourth straight weekly advance drove shares to their highest mark since March 2020.

Auto Retailers: Time To Kick The Tires A Little Harder

Carvana‘s (CVNA) 40% breakdown this past week points to new and used auto dealers as a stock market segment to watch. Inventories at new car dealerships have rebounded 70% since hitting a historical low in February. That has placed increasing pressure on used car prices. Wholesale (auction) prices for used vehicles dropped 14% in the 12 months through November. Used car prices, on average, began easing in July. Shares of dealership leader CarMax (KMX) held support at their 10-week moving average as Carvana tumbled. Others, including Penske Automotive (PAG), Asbury (ABG) and Group 1 (GPI) traded very tight and level, holding their recent gains.

Blue Chips: UNH Leads A Lonely Advance

Only one Dow industrial stock gained more than 1% over the past week: UnitedHealth Group (UNH). That put UNH shares up more than 8% from a Nov. 15 low, and about 2% below a flat base buy point at 558.20. The base formed nicely above support at the 10-week moving average. On the downside, two thirds of the 30 industrials gave up 1% or more for the week. Salesforce.com (CRM) and Walt Disney (DIS) were hardest hit, with Salesforce down almost 10% after a management shuffle.

Homebuilders: Meritage, Toll Brothers Back Above Support

Homebuilders stocks have posted one of the largest gains among industry groups over the past 30 stock market sessions. Riding speculation that the Fed could curtail its rate hike initiative, the group collectively climbed about 20% vs. the S&P 500’s almost 10% gain over the same period. A leader in that advance, Beazer Homes (BZH), met resistance at its 200-day line. But Meritage Homes (MTH), Toll Brothers (TOL), D.R. Horton (DRI) and Lennar (LEN) have all plowed past 200-day resistance and are trading level with July highs, poised to move to their highest levels since March.

Stock Market Earnings

Monday:

Oracle (ORCL) reports quarterly results late Monday. Analysts expect the database software giant to report earnings of $1.17 a share, down 3%. The estimate on revenue is a jump of 16%. That’s the strongest growth by Oracle in more than five quarters, as a result of its  multiyear transition to the cloud paying off.

Tuesday:

ABM Industries (ABM) reports fourth-quarter earnings late Tuesday. Analysts expect EPS growing 3% to 88 cents. That’s slightly above an average 2% gain over the last three quarters for the facilities services firm. The Street forecasts revenue increasing 19% to $1.9 billion below the 26% average gain across the last three quarters.

Wednesday:

Lennar Corporation (LEN) reports fourth-quarter earnings late Wednesday. Wall Street forecasts earnings growing 25% to $4.88 per share. That earnings gain is above the 11% average over the last three quarters. Sales are expected to advance 18% to $9.9 billion for the homebuilding company, slightly below the 24.3% average gain over the last three quarters.

Nordson (NDSN) reports fourth quarter results after the stock market closes on Wednesday. The adhesive and fluid manufacturer’s earnings and revenue growth has slowed the past three quarters. But analysts expect earnings to accelerate again with a 23% jump to $2.33 per share. And sales are seen picking back up with an 8.7% increase to $651 million.

Friday:

Early Friday, Darden Restaurants (DRI) is likely to report a 3% EPS decline to $1.43. Revenue for the Olive Garden parent is seen climbing 6.8% to $2.426 billion.

Also early Friday, Winnebago Industries (WGO) should see earnings crumble 49% to $1.80 a share. Sales are seen tumbling 25% to $861.8 million for the RV maker as pandemic tail winds fade. REV Group (REVG) is due early Wednesday.

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