Weekly Market Review: Investors Buy Ahead of Expected Stimulus

The broader market averages rallied this week. Technology stocks led, following a report that Apple (AAPL) plans to boost iPhone production by 30% in the first half of 2021.

A speculative frenzy also manifested around Tesla’s (TSLA) addition to the S&P 500 on Friday and Bitcoin’s rally above $23,000.

In addition, investors are banking on another round of economic relief from Congress. On Friday, President Trump allowed for two days of emergency funding. This is so lawmakers can agree on an annual budget and a proposed $900 billion stimulus program.

The Federal Reserve said on Wednesday that it will continue to do its part to support the U.S. economy. Chairman Jerome Powell pledged to keep interest rates at or near zero through 2023. He also vowed to buy at least $120 billion of Treasury bonds and mortgage-backed securities each month.

More economic relief in any form will be welcome on Main Street. Weekly initial jobless claims increased to 885,000 on Thursday. In addition, November retail sales posted a surprise decline on Wednesday.

Coronavirus Update

It may no longer be the top news story in the financial press, but the coronavirus pandemic is still with us.

The first doses of Pfizer’s (PFE) vaccine were administered in the U.S. on Monday. Late Friday, Moderna’s (MRNA) vaccine also received approval from the Food and Drug Administration.

The U.S. has recorded over 18 million cases to date. Meanwhile in the U.K. a stricter lockdown of London and surrounding areas has been enforced. This follows a new strain of the coronavirus which has been quickly spreading.  

If the pandemic continues to persist, it could hamper the positive trajectory of the economic recovery as we head into 2021.

What to Expect Next Week

We believe that trading volume will be relatively light next week, as U.S. stock markets will close at 1 p.m. ET on Thursday, ahead of the Christmas holiday.

As we begin to look toward 2021, it’s worth noting that the U.S. Dollar Index (DXY) is at the lowest level in almost three years. If this trend continues, it will likely help companies that generate a majority of their revenue overseas. 

Following the snap-back recovery in stocks from March lows, we believe that investment gains will be harder to come by in 2021.

As a result, deciding what and when to buy can be challenging for any investor. However, the fact remains that attractive investments are out there, if you’re willing to dig a little deeper.

One such Technology name is worth a closer look and is our Stock of the Week.

Stock of the Week: Calix (CALX)

The company makes cloud software that helps customers like Verizon (VZ) optimize networks.

The stock gained more than 26% this week. We believe this momentum can continue going into 2021. Here’s why:

Even with progress fighting the coronavirus, some “temporary” remote working habits may become permanent when business activity returns to “normal”.

Calix is riding strong operating momentum into 2021. It delivered results in October that surpassed management’s guidance for a third straight quarter.

The company earned $0.40 a share in the period, as revenue increased 31% from the previous year, to $150.5 million. Upside in the quarter was driven by 70% growth in cloud sales. Calix saw solid demand across the board, as network service providers have been tasked with increasing capacity during the pandemic.

Looking ahead to the fourth quarter, management expects revenue of $157 to $161 million and to generate positive free cash flow.

In addition, it’s worth noting that the company carries a Smart Score of 10/10 on TipRanks. This proprietary score utilizes Big Data to rank stocks based on 8 key factors that have historically been a precursor of future outperformance.

On top of the positive aspects mentioned already, the Smart Score indicates that the shares have seen improving sentiment from analysts and financial bloggers.

FYI: This is just 1 of the 20+ stocks selected for the Smart Investor portfolio. That’s where we share more detailed insights on our weekly stock picks.