Weekly Market Review: Stimulus Hopes Drive Gains

The broader stock market averages rallied about 4% across the board this week, as lawmakers in Washington moved closer to an agreement on the latest round of coronavirus-related relief. Materials and Energy names led the way higher, while Real Estate stocks lagged.

The Russell 2000 index, a proxy for small-cap names, nearly doubled the performance of the blue-chip Dow Jones Industrial Average this week.

The latest press reports suggest that President Trump and Republicans have proposed a $1.8 trillion economic relief package. But there is no guarantee any deal will be in place before the national election on Nov. 3.  

Coronavirus Update

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

President Trump came home from the Walter Reed military hospital on Monday. Daily cases in the U.S. surged back up 60,000 by the end of the week. The second Presidential debate for Oct. 15 has been canceled, due to health concerns.

On the treatment front, both Eli Lilly (LLY) and Regeneron (REGN) applied for emergency-use authorization for their antibody treatments.

If the pandemic continues to spread, it could hamper the positive trajectory of the economic recovery reported in recent months.

What to Expect Next Week

Earnings season kicks off next week, with 31 companies in the S&P 500 expected to post results. According to Refinitiv, aggregate S&P 500 earnings are expected to decline 21% from a year ago.

JPMorgan Chase (JPM) and Johnson & Johnson (JNJ) kick off the action. Goldman Sachs (GS) and UnitedHealth (UNH) follow on Wednesday.

In economic activity, we’ll get a look at both consumer and producer inflation in the first half of the week. September retail sales will follow on Friday.

One thing we noticed this week which may have been lost in the mix, is that the yield on the benchmark 10-year Treasury moved back up toward 0.80%. This is the highest level since June and could signal a bet on inflation, or simply a rotation away from Fixed Income investments. Either way, it’s something we’ll be keeping an eye on.

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

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: Chegg (CHGG)

The company provides online study services and textbook rentals. Chegg has nearly 4 million subscribers and averages about 15 million unique visitors to its online platform each month.

The stock gained 12% this week and we believe this positive momentum can continue throughout the remainder of 2020. Here’s why:

Business has flourished during the coronavirus pandemic, but the company was seeing steady growth long before March. Part of that strategy is focused on expanding outside of key markets, such as the U.S., Australia, Canada and the U.K.

Chegg’s growth potential was on display in August, when management posted quarterly results that exceeded expectations and boosted forward guidance. The company earned $0.37 a share in the second quarter, as revenue increased 63% from a year ago, to $153 million.

Wall Street Sees Upside Potential

The average price target of 12 active analysts tracked by TipRanks is $95.25, which represents 17% upside potential.

In addition, it’s worth noting that the stock 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 company has seen insider buying, as well as improving sentiment from analysts, hedge funds 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.