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Weekly Market Review: Volatility Increases Ahead of Rate Decision
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Weekly Market Review: Volatility Increases Ahead of Rate Decision

U.S. stocks fell about 3% across the board on Friday, as the Nasdaq Composite closed out its worst month since 2008. Consumer Discretionary and Real Estate names led the way lower last week.

In economic activity, it was reported on Thursday that first-quarter U.S. GDP showed a surprise 1.4% decline. A day later, the core PCE price index, the key inflation gauge of the Federal Reserve, showed 5.2% growth from a year ago.   

Elsewhere, it was reported that core U.S. durable goods orders increased in March, while consumer confidence ticked lower in April.

The Week Ahead

The pace of first-quarter reporting remains high, with 160 names in the S&P 500 on the calendar this coming week. Pfizer (PFE) and Starbucks (SBUX) headline the reporting slate Tuesday, followed by CVS Health (CVS) on Wednesday.

According to Refinitiv, more than half of the companies in the S&P 500 have posted quarterly results. 80.4% have exceeded earnings expectations.

Aggregate S&P 500 profit is expected to increase 10.1% in the first quarter. Backing out the Energy sector, which benefited from higher commodity prices, earnings are expected to have grown just 4.4% from the previous year.

On the economic front, the Institute for Supply Management (ISM) will post its April report for the U.S. manufacturing sector on Monday, followed by data on services activity Wednesday.

Wednesday also brings the latest interest rate decision from the Federal Reserve. Fed funds futures are currently pricing in a 97% probability for a 50-basis point increase, to a range of 0.75% – 1%, with the intent of battling rising inflationary pressures.

The economic calendar culminates on Friday, with the April U.S. employment data. Estimates call for the addition of 380,000 non-farm payrolls last month and for the headline unemployment rate to decline to 3.5%.

Following the snap-back recovery in stocks over the past several quarters from Pandemic lows, we believe that investment gains will be harder to come by in 2022, given a slowing growth outlook and the prospect of higher interest rates. 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 Commodity name is worth a closer look and is our Stock of the Week.

Stock of the Week: Teck Resources (TECK)

The company mines for steelmaking coal, copper, zinc, and other commodities.

The stock gained nearly 6% amongst broad losses last week. This relative outperformance could continue in the first half of 2022. Here’s why:

Teck could act as a natural hedge to rising inflationary pressures. Its earnings power was on display last week when management delivered quarterly results that surpassed expectations.

The company earned $2.31 a share in the first quarter of 2021, as revenue grew 90% from a year ago, to $3.93 billion. Upside in the period was driven by higher commodity prices.

Teck generated nearly $5 billion of operating cash flow last year and has pledged to return some to investors. Management said last week that it will buy back $500 million worth of shares.

Despite the solid results, Teck is currently valued at just 5.8x expected earnings over the next four quarters, which represents a steep discount to the broader market.

Wall Street agrees that the stock holds value. The average price target of 21 active analysts tracked by TipRanks is $47.47, which represents 20.3% upside potential.

In the meantime, 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 shares have seen improving sentiment from hedge funds, financial bloggers, and individual investors.

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.

Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of TipRanks or its affiliates Read full disclaimer >

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