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Rising Inflation Brings Sluggish Start to Earnings Season

Published 07/13/2021, 09:15 PM
Updated 07/09/2023, 06:31 AM

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▪ Jeremy and Brian Agree to Disagree on whether crude oil is in a bullish run and will print $100 a barrel before it’s over
▪ Kevin answers why some stocks have a Zacks Rank of 1 or 2 but can have a Style Score of F, and why some stocks have a Zacks Rank of 4 or 5 but can have a Style Score of A. He also discusses the Employment Situation Report, GDP, Interest Rates, Consumer Confidence and Earnings
▪ Sheraz and Brian choose one portfolio to give feedback for improvement
▪ And much more

Simply log on to Zacks.com and view the July episode here. And please let us know what you think of this format. Email all feedback to mailbag@zacks.com.


After two consecutive sessions of record closes, stocks took a step back on Tuesday as a scorching CPI brought inflation fears back to the forefront. Meanwhile, earnings season kicked off with solid reports, though investors weren’t very impressed.

Consumer prices for June were up 5.4% year over year, which was more than expectations of around 5%. They were also up 0.9% over the previous month. Core CPI (which excludes food and energy) was hotter-than-expected with a rise of 4.5%. It’s yet another sign that inflation is increasing, which the Fed says is mostly transitory. Investors hope that’s true, but remain skeptical

Despite such concerns, the losses on Tuesday were very modest. The NASDAQ declined 0.38% (or about 55 points) to 14,677.65, while the S&P slipped 0.35% to 4369.21. The Dow was off 0.31% (or around 107 points) to 34,888.79.

The market’s response to the rising CPI these past three months has been all over the place. The hot April report led to a 2% plunge on the day of its release (May 12), while the May print (June 10) saw stocks reach fresh highs despite prices moving higher. Today’s report was right in the middle.

But the CPI number is a one-day thing, while earnings season will be with us for the next several weeks. It kicked off today with solid reports from banking giants JPMorgan (NYSE:JPM) and Goldman Sachs (NYSE:GS). Both of these companies beat on the top and bottom lines with positive earnings surprises of 21.9% and 51.7%, respectively.

But similar to last quarter, it looks like the market is going to be pretty hard and unforgiving on the reports this season. Despite the positive numbers, shares of JPM were off 1.5% in the session and GS was down 1.2%.

However, shares of Pepsico (NASDAQ:PEP) rose 2.3% after strong results from the food and beverage giant, which included an earnings surprise of more than 13% and year-over-year sales growth of 20.5%. The company also raised its EPS outlook.

We’ve got even more financial giants scheduled to report on Wednesday, including Bank of America (NYSE:BAC), Wells Fargo (NYSE:WFC) and Citigroup (NYSE:C). Blackrock (NYSE:BLK) and PNC Financial (NYSE:PNC) go to the plate tomorrow as well. All of these reports will be released before the bell.

And Wednesday also marks the first of two days of testimony from Fed Chair Jerome Powell in front of Congress. That should be interesting...

Today's Portfolio Highlights:

Stocks Under $10: This portfolio doesn’t make a whole lot of dividend plays, but that changed today with the addition of Berry Corporation (BRY). This independent upstream energy company has a yield of 2.35%, underscoring its stability and profitability. BRY beat the Zacks Consensus Estimate by 600% in its most recent quarter, while rising earnings estimates have made the stock a Zacks Rank #1 (Strong Buy). The editor is buying this name for less than the value of all the assets on hand, and believes it will get into the double-digits if margins move to the 15%-20% range. To make some room in this full portfolio, Brian also sold American Axle (NYSE:AXL) & Manufacturing (AXL) for a 21% return in less than seven months and Crescent Point Energy (NYSE:CPG) for a loss. The complete commentary has more on today’s action. In other news, Cassava Sciences (NASDAQ:SAVA) once again made the top performers list on Tuesday with a gain of 4.5% and is also in the Top 5 over the past 30 days with a surge of 34.81%.

Surprise Trader: After a ‘quick turnaround idea’ to begin earnings season yesterday, Dave mixed it up on Tuesday by adding a stock with plenty of time before its next quarterly report. Materion (NYSE:MTRN) is a Zacks Rank #2 (Buy) that’s engaged in the production of higher-performance engineered materials. The company hasn’t officially announced a date for an earnings release, but it usually reports in the second to last week of July. The portfolio will now be able to take full advantage of any potential runups ahead of the report. MTRN will be going for a fifth straight positive surprise later this month. It topped by more than 36% last time and has a positive Earnings ESP for its upcoming announcement. The editor added MTRN on Tuesday with a 12.5% allocation. Read the full write-up for more.

Marijuana Innovators: Shares of OrganiGram Holdings (NASDAQ:OGI) soared nearly 20% this morning after the company reported a “stellar” quarterly report, which included better-than-expected earnings and revenue. It also had a nice outlook. The stock pulled back from its highs as the day progressed, giving Dave a great opportunity to pick up this name for the portfolio. OGI is a licensed producer of cannabis and cannabis-derived products, primarily in Canada. Read the complete commentary for a lot more info on this new addition.

Blockchain Innovators: This portfolio easily had the best performer among all ZU services on Tuesday as Sohu.com (NASDAQ:SOHU) soared 27.6%. This leading China-based provider of online advertising, search, media and gaming services is now among the most positive movers in the past 30 days with a rise of 35.8%. SOHU has gained more than 24% in the portfolio since Dave added it back in mid-April.

Zacks Short Sell List: Only one position was swapped out in this week's adjustment. The portfolio short-covered TripAdvisor (NASDAQ:TRIP, +6.9%) and filled that open spot by adding Dynatrace (NYSE:DT). Learn more about this emotion-free portfolio that takes advantage of falling and volatile markets by reading the Short Sell List Trader Guide. Meanwhile, this portfolio had two names on the top performers list as the shorts in Delta Air Lines (NYSE:DAL) and PLBY Group (PLBY) brought advances of 3.6% and 2.9%, respectively.

Have a Good Evening,
Jim Giaquinto

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