Weekly Market Review: Rally Takes a Breather

The broader market averages paused last week, digesting four straight weeks of gains. Real Estate and Healthcare names led the way higher, while the Energy sector lagged.

Volatility increased in the latter half of the week, after it was widely reported on Thursday that President Biden is planning to propose increasing the base capital gains tax for Americans earning more than $1 million a year, to 39.6%.

In the meantime, U.S. economic data continues to show that the business recovery is progressing, as more areas of the country emerge from the COVID-19 pandemic.

This broad strength was present in the preliminary April purchasing managers’ index (PMI) reported by IHS Markit on Friday. Both the Manufacturing and Services sectors posted record business activity, dating back to 2009.

The Leading Economic Index (LEI) announced a day earlier also showed that all 10 components increased in March, which is something that had not occurred in 15 years.

Earnings Season

Earnings season heats up this week, with 180 companies in the S&P 500 expected to post quarterly results. Notable reports expected include:

April 26: Tesla (TSLA)

April 27: Alphabet (GOOG), Eli Lilly (LLY), Microsoft (MSFT) and Starbucks (SBUX)

April 28: Apple (AAPL), Boeing (BA) and Facebook (FB)

April 29: Amazon (AMZN), McDonald’s (MCD) and Merck (MRK)

April 30: Exxon Mobil (XOM)

According to Refinitiv, aggregate S&P 500 earnings are expected to increase nearly 34% in the first quarter from a year ago, up from an estimate of 31% just a week ago.

According to Refinitiv, aggregate S&P 500 earnings are expected to increase nearly 34% in the first quarter from a year ago, up from an estimate of 31% just a week ago.

The Week Ahead

As April comes to a close, it will also be a busy week on the economic calendar. The key report is Thursday’s initial reading of first-quarter U.S. GDP. Economists are looking for 6.5% growth and the Atlanta Fed’s GDPNow estimate is up at 8.3%.

Earlier in the week, we’ll get a look at Consumer Confidence on Tuesday. The FOMC will also announce it’s next interest rate decision on Wednesday, although no change in short-term rates is expected. Friday offers a look at the PCE deflator, which is one of the Fed’s key inflation measures.

Following the snap-back recovery in stocks last year from Pandemic 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 Consumer name is worth a closer look and is our Stock of the Week.

Stock of the Week: Clarus (CLAR)

The company manufactures a wide variety of consumer products, including outdoor sporting goods and skincare. The stock gained more than 5% this week and we believe this momentum can continue into the second half of 2021. Here’s why:

Clarus’ brands, including Black Diamond, may not be household names, but are leaders in their niche markets. As a result, management has been delivering consistent growth.

The company boosted guidance back in February and reported 12% organic sales growth in the most recent quarter.

The stock is presently valued at 19.2x expected 2021 earnings of $0.97 a share. This is a discount to both the broader market and the 25.9% average profit growth that Clarus is expected to post over the next two years.

Wall Street agrees that the company has value at current levels. All five active analysts tracked by TipRanks rate the shares a Buy. The average price target of $22.60 represents 21.1% upside potential.

In addition, the company carries a Smart Score of 9/10 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 shares have seen improving sentiment from 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.