The unemployment rate dropped from
6.7% to 6.3% and the US created 288,000 jobs last month. Over the last three years, the US
created an average of 238,000, far above last year’s pace, but while those
numbers looked like the economy is picking up steam, a different number spooked
investors. If you dig further into
the numbers, the reason that stocks sold off from their initial pop was because
of the real number that matters, labor force participation, which is at a 30
year low of 62.8%. There were 10 million people unemployed in April, 7.5
million were stuck in part-time jobs instead of full-time jobs and about 4
million remained out of work for more than 6 months. The measure of unemployment, which includes involuntary
part-time workers and those too discouraged to look for employment sits at
12.3%, which is 50% higher than pre-recession levels. The other bad news, workers wages only increased 1.9% YoY,
while outpacing inflation, still isn’t strong enough to raise their standard of
living. For those reasons, the
stock market couldn’t hold the early gains, while gold and treasuries all
rallied sharply.
This is an important week for the
stock market. The S&P failed
to close above the key resistance of 1885 Wednesday, Thursday and Friday, which
for technical traders, does not bode well for stocks in the near term. With key earnings reports coming from
Dow bellwethers, Pfizer and Disney, and high-flying momentum name Tesla on Wednesday, along with a two-day testimony from Fed Chair, Janet Yellen, investors
will use any excuse to sell stocks.
I anticipate the S&P will trade lower, but as I’ve said before, you
should use every sell off in the market to build on your positions. While it’s not the most important
company in the market, Tesla’s earnings report is going to be the most
important report this week. The
stock market will not be able to gain traction without the Nasdaq rallying with
it. The tech and biotech heavy
index is still about 4% off multi-year highs, but has actually closed higher
for three straight weeks. If Tesla
rallies on the heels of better-than-expected earnings (which I think it will),
look for the momentum to continue to push the Nasdaq higher. If you look at the price action in the
momentum names this week, the big stocks all outperformed the market (S&P
gained just less than 1%).
Facebook rallied 4.8%, Google rallied 2%, Tesla was higher by 5%, Amazon
rallied 1.3%, and Gilead Sciences soared 5.1%. If the market is going to make new all-time highs, these are
the names that are going to get it there, and those are the ones that I am
keeping my eye on.
Two stocks that you should be looking
to buy this week, and adding on to your positions on pullbacks are the top 2
clothing retail stocks in the business.
The first is the high-end Michael Kors and the second is Macy’s. Both report earnings this month, which
I expect to be very strong. Last
week, luxury retailer Coach, reported global sales being down 7%, revenues
dropping 18%, and the worst news of it all, same-store sales sunk 21% for the
quarter. When Michael Kors and
even Kate Spade for that matter report earnings, you’ll see that Kors has
continued to take away a lot of business from Coach. Kors has a lot of room for growth as well, with having just
under 400 retail locations across the globe. It is also greatly benefiting from licensing it’s products
and reaping hefty margins. On a
technical basis, Kors is about 7% off all-time highs hit in late February, as
it sold off along with the rest of the high P/E stocks. It closed at $93.21 on Friday after
hitting it’s highest level in a month and is currently trading above the 78.6%
Fibonacci retracement, after holding the $85 on three different occasions last
month. I like that price action. Along with Kors, Macy’s has been the
most consistently strong retailer and will continue to do so. They have a great management team in
place that helped them outperform just about every one of their competitors
since 2009. Macy’s has focused on
strengthening their online sales, helping improve margins and showed great
sales strength in February, a month that most retailers blamed the weather for
weak sales. Macy’s closed on
Friday at $57.19, like Kors, about 7% from all-time highs, but holding a key
support level at $56.50. The stock
is up 7% YTD, outperforming the S&P, and I would begin building my position
this week. If the stock
drops due to a broad market sell-off, I would look to pick up additional shares
around $55.
Friday’s close of 1881 in the
S&P is the highest weekly close ever.
While I don’t like that it failed at 1885 three straight days, the price
action is still somewhat encouraging.
If problems with Russia subside and Janet Yellen doesn’t disappoint the
market during her testimony this week, we could see new all-time highs in the
S&P. The most important
earnings report of the week will come Wednesday when Tesla reports after the
close. The current price action is
indicating a strong quarter and if it comes to fruition, the Nasdaq will carry
the markets into the weekend. Look
to pick up some Michael Kors and/or Macy’s this week, and add to the positions
on broad market sell-offs. I still
do not see any reason to lower my price target for the year, so I am sticking
with a 17% gain in the S&P.
My current positions: Long
Ford (F), Toll Brothers (TOL), Gilead Sciences (GILD), SunPower Corporation
(SPWR), Starbucks (SBUX), Macy’s (M), Southwest Airlines (LUV), Boeing (BA), Disney
(DIS), Bank of America (BAC), Google (GOOGL), Nike (NKE), long COPPER.
Jeff Lewison
No comments:
Post a Comment