The major indexes looked ready to put an end to their recent mini-slump Thursday, but early gains turned to ash despite some good news on the jobs front.
The Labor Department said that initial filings for unemployment benefits during the week ended Sept. 4 declined by 35,000 to a pandemic-low 310,000 – below expectations for 335,000 claims.
Nonetheless, the Dow Jones Industrial Average, ahead by as much as 169 points (roughly 0.5%) in morning trade, swung to a 151-point, 0.4% loss to 34,879 for its fourth consecutive decline. The S&P 500 (-0.5% to 4,493) and Nasdaq Composite (-0.3% to 15,248) similarly flipped from green to red.
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The potential of an earlier slowing of Federal Reserve stimulus might still be on investors' minds, as the European Central Bank said today that it will pare back a similar asset-purchasing mechanism.
"Based on a joint assessment of financing conditions and the inflation outlook, the Governing Council judges that favorable financing conditions can be maintained with a moderately lower pace of net asset purchases under the (pandemic emergency purchase program) than in the previous two quarters," the ECB said.
"The Fed has to taper regardless of labor markets," says Tony Roth, chief investment officer of wealth services firm Wilmington Trust. "There is so much wage pricing pressure that the Fed needs the option to raise rates. They can't do that if they have not moved far into tapering, but we will see it by the end of the year and the equities markets have already priced this in."
Also of note: Several carriers, including United Airlines (UAL, +2.3%) and American Airlines (AAL, +5.6%), revised their quarterly forecasts lower Thursday, saying that growing COVID cases had weighed on bookings. While the industry's stocks actually rose in response, the news could serve as an economic red flag.
Other news in the stock market today:
- The small-cap Russell 2000 held onto gains until the final minutes of the day, eventually sustaining a marginal loss to 2,249.
- Lululemon Athletica (LULU, +10.5%) shares took off in response to a beat-and-raise second-quarter earnings report. LULU said Q2 revenues grew 61% to $1.45 billion and adjusted earnings popped 123% to $1.65 per share – those figures beat respective expectations for $1.34 billion and $1.19 per share. Lululemon also raised its forecast for Q3 2021, expecting revenues between $1.40 billion and $1.43 billion, and adjusted earnings per share (EPS) of $1.33 to $1.38. William Blair analysts were among the pros chiming in with praise Thursday, reiterating their Outperform (Buy) rating "given continued upside potential to estimates alongside the brand's long-term growth runway, exceptional connection with consumers and tangential opportunities to broaden lululemon's global TAM to $3 trillion."
- GameStop (GME, +0.2%) looked like it was going to be in for a long day after it reported growing Q2 sales but a steeper-than-expected loss and provided a disappointing post-earnings call. "As the board lays groundwork to transform GameStop into a 'technology' company that delights gamers, many details still remain a mystery, particularly as the shift toward game downloads, streaming and cloud services picks up steam," says Baird analyst Colin Sebastian, who does not have a rating on GME shares. "We appreciate more details on infrastructure build-out, filling management roles, and expanding the product catalog, but it looks more like the strategy is to create a slimmed-down, omni-channel version of Best Buy. We encourage Mr. Cohen to be a little more transparent with his plans if he wants support from longer-term oriented investors." Nonetheless, GME erased early losses of more than 10% by the close.
- U.S. crude futures dropped by 2.0% to $67.87 per barrel after China announced plans to tap state oil reserves.
- Gold futures bounced back a little, gaining 0.4% to $1,799.50.
- The CBOE Volatility Index (VIX) climbed 4.3% to 18.74.
- Bitcoin made a slight 0.3% improvement to $46,573.60. (Bitcoin trades 24 hours a day; prices reported here are as of 4 p.m. each trading day.)
Make the Most of a Difficult Road Ahead
The market has its work cut out for it.
A team of Bank of America Securities analysts, for instance, says it believes the S&P 500 will hit 4,250 by year's end, and 4,600 by the end of 2022 – that's a respective 5.4% decline and 2.4% improvement from current levels.
"Sentiment is all but euphoric with our Sell Side Indicator closer to a sell signal than at any point since 2007," BofA's team says. "Wage/input cost inflation and supply chain shifts are starting to weigh on margins. Interest rate risk is at a record high … and valuations leave no margin for error."
Not exactly an ideal situation for picking stocks.
BofA suggests inflation-protected yield, which you can find among these inflation-fighting funds, as well as small-cap stocks, given more attractive valuations at present and a tighter tether to U.S. GDP growth.
However, if you're looking for stock picks on the road typically more traveled, consider taking a gander at investors who are plunking down tens and even hundreds of millions of dollars into their best ideas.
Institutional investors, hedge funds and billionaires have unique access to research and insights that most of us simply don't, and that alone makes their choices worth a closer examination. Read on as we explore 25 of their highest-conviction stock picks – bets that all grew to some extent during the most recent quarter.
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