Investors sifted through a busy news cycle on Thursday and decided they liked what they saw, with stocks ending higher for a third straight day.
Things got started early this morning on word that the European Central Bank (ECB) lifted interest rates by a higher-than-expected 50 basis points (a basis point is one-one hundredth of a percentage point). The rate hike marks the first for the ECB in 11 years, and comes as the central bank attempts to battle sizzling inflation and slowing economic growth across the eurozone.
Back at home, the earnings calendar remained in focus, with the latest quarterly results from Tesla (TSLA) garnering notable attention. The maker of electric vehicles reported second-quarter earnings that beat analysts' consensus estimate, though they fell short on revenue.
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"The company was clearly profitable this quarter," says Wes Gottesman, market advisor at Web3 trading platform TradeZing. "However relative to other quarters, the automotive revenue was down to $14.6 billion, as compared to the previous quarter's $16.9 billion. The culprit clearly being the shutdowns in Shanghai, and cutbacks in production/deliveries. That was the issue for this quarter, at no fault of their own. Their gross margins are at 25%, which means they have significant pricing power, while increasing production. Tesla also has a strong solar energy component which will continue to prosper as the world transitions to solar energy."
In addition, TSLA sold roughly three-quarters of its Bitcoin purchases in Q2. The move was made to "maximize" the company's cash position, CEO Elon Musk said in the earnings call. He added that Tesla is "open to increasing" its Bitcoin holdings in the future, and that "this should not be taken as some verdict" on the cryptocurrency. TSLA did not sell any of its Dogecoin, according to Musk.
Still, Bitcoin fell 2.0% to 23,197 on that news (Bitcoin markets don't close; price taken at 4 p.m. ET.), while TSLA shares soared 9.8%. Tesla's rally helped the broader stock market brush off news that President Joe Biden tested positive for COVID-19, with the Nasdaq Composite gaining 1.4% to 12,059. The S&P 500 Index rose 1.0% to 3,998, while the Dow ended up 0.5% at 32,036.
Other news in the stock market today:
- The small-cap Russell 2000 added 0.5% to 1,836.
- U.S. crude futures shed 3.5% to settle at $96.35 per barrel.
- Gold futures rose 0.8% to end at $1,713.40 an ounce.
- AT&T (T) plunged 7.6% after the telecom firm lowered its full-year free cash flow guidance to $14 billion from $16 billion, "to reflect heavy investment in growth and working capital impacts related to timing of collections," the company said in its press release. This overshadowed T's higher-than-expected adjusted earnings of 65 cents per share and revenue of $29.6 billion in the second quarter.
- Travel stocks struggled today following negative earnings reactions for American Airlines (AAL, -7.4%) and United Airlines (UAL, -10.2%). While AAL posted its in-line earnings per share of 76 cents on higher-than-expected revenue of $13.42 billion, it cut third-quarter capacity, now expecting to fly 8%-10% below what it did in Q3 2019. And UAL recorded a slimmer-than-anticipated second-quarter loss of $1.43 per share, but revenue of $12.11 billion fell short of the cosensus estimate.
- Data from the Labor Department showed jobless claims rose 7,000 on a weekly basis to 251,000 – the most since last November. Still, this did little to move markets today. "With earnings season in full swing and the ECB announcing its first-rate hike in more than a decade, the slight tick up in jobless claims may take a backseat in investors' minds," says Mike Loewengart, managing director of investment strategy at E*Trade. "But with jobless claims on an upward trend over the last month, some may question if the labor market will start to factor in more to the Fed's plan as it works aggressively to tame inflation."
A "Best-of-Both-Worlds" Scenario for Investors
Mid-cap stocks were another area of the market where investors found green ink today. This group of equities (typically firms with market capitalizations that fall between $2 billion and $10 billion) have been quietly holding their own in recent weeks, up 0.8% today and 6.7% so far this quarter.
Often, mid caps are overlooked by those seeking out larger-cap names for stability or small-cap stocks for growth. Yet, this area of the market can provide investors a "best-of-both-worlds" scenario: higher growth potential than large caps and less volatility than smaller cap names.
And in the current backdrop of "a fast-moving business cycle and global central bank tightening," investors should consider mid-cap stocks, say Wells Fargo Investment Institute strategists; specifically, those with "the potential to post stable, high-quality earnings." Here, we've put together a list of the best mid-cap stocks to buy for these very qualities. What's more, each enjoys top ratings from Wall Street's pros.
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