Sluggish Start to Retail Earnings Week

Stocks finished last week on a roll with strong back-to-back performances after a stiff inflation-induced plunge, but the weekend really cooled things off and left the major indices with slight losses in a groggy Monday session.

Meanwhile, earnings season moves toward its conclusion with some of the biggest retailers in the country scheduled to report in the next few days. It's been a truly fantastic season where more than 80% of companies beat earnings estimates… even if the market rarely rewarded them for the effort.

On Monday, stocks were sluggish with tech again under pressure. The NASDAQ slipped 0.38% (or about 50 points) to 13,379.05. The index lost 2.4% last week, but that was after soaring approximately 3% on Thursday and Friday combined.

The S&P slipped 0.25% to 4163.29, while the Dow was down 0.16% (or about 54 points) to 34,327.79. These indices were off 1.4% and 1.1%, respectively, last week.

We’re coming back from a really volatile week, which saw inflation concerns pull everything down in the first three days (especially tech). The final two sessions saved some face for the market, though it was still solidly in the red over the five days.

Despite the bounce off oversold levels late last week, the market is still not comfortable with the recent CPI report. Consumer prices jumped 4.2% in April year over year, which surged past expectations of around 3.5%. That’s something this skittish market isn’t going to get over quickly, especially since this issue has been its main concern with the pandemic now on its last legs.

But this week won’t be all about inflation. Earnings season still has some work to do, especially when it comes to the retailers. Tomorrow will be one of those busy days with giants like Walmart (NYSE:WMT) and Home Depot (NYSE:HD) going to the plate before the bell. Department store staple Macy’s (M) is also scheduled for tomorrow ahead of the open.

For more on this Retail Week, check out Headline Trader editor Dan Laboe’s new article titled: “What to Expect from Retail Earnings Week”.

Today's Portfolio Highlights:

Surprise Trader: For the second session in a row, department store giant Dillard’s (DDS) was easily the top performer among all ZU names. It jumped 12.8% on Monday after reporting strong quarterly results last week that included a more than 400% positive surprise. So you can see why Dave stuck with the same industry today by adding Kohl’s (KSS). This Zacks Rank #1 (Strong Buy) has a positive Earnings ESP of more than 155% for the quarter coming before the bell this coming Thursday, May 20. The editor added KSS today with a 12.5% allocation, while also selling Tractor Supply (NASDAQ:TSCO) for 3.1% in a month to free up some space for the remainder of the season. Read the complete commentary for more on today’s action. By the way, DDS is now the best performer over the past 30 days as well with a gain of 34.9%.

Technology Innovators: For the past several months, Alpha and Omega Semi (NASDAQ:AOSL) has been trending lower. However, Brian thinks this stock is poised for a rebound, especially if the chip shortage is about to end (as he expects). AOSL is a Zacks Rank #1 (Strong Buy) that has beaten the Zacks Consensus Estimate in each of the past four quarters with an average surprise of 33% in that time. Looking forward, earnings estimates have been advancing across the board with analysts calling for growth of 200%+ for this year. Despite this growth, the valuation still looks attractive and margins have been on the rise for the past three quarters. Brian added AOSL on Monday before the next move higher, while also selling Upwork (NASDAQ:UPWK) after it slipped to a Zacks Rank #5 (Strong Sell). See the complete commentary for more on today’s action.

Blockchain Innovators: There’s no need to explain what Coinbase (COIN) has to do with blockchain technology. This pure-play is the country’s largest cryptocurrency exchange, trading about 50 different digital assets. Dave wanted to add COIN ever since its IPO, and now has a fantastic opportunity after the recent selloff. The stock is currently trading below its IPO price, which means it has plenty of room to run higher. “As bitcoin and other currencies tumble, this feels like a bit of a contrarian move... which I am all for,” said the editor. Read more in the full write-up.

TAZR Trader: Throughout this “software slide and Bitcoin bludgeoning”, Square (SQ) is holding at around $200. Kevin has been a fan of this innovative payment processor for a while now, and considers the stock to be a deal at this price. Therefore, he added more to SQ once again on Monday. The portfolio originally bought this position back in November and added to it twice since then. Now it's three times! Read the complete commentary to learn about the five reasons why the editor made this move.

Black Box Trader: This week's adjustment swapped out four stocks. The names that were sold today included:

• CNH Industrial (NYSE:CNHI, +2.7%)
• CommScope (COMM, +0.7%)
• Bloomin Brands (BLMN)
• Fluor (NYSE:FLR)

The new buys that filled these spots were:

• Sally Beauty (NYSE:SBH)
• Timken Steel (TMST)
• U.S. Steel (X)
• U.S. Foods (USFD)

Read the Black Box Trader’s Guide to learn more about this computer-driven service.

Headline Trader: "The markets are readjusting for the new normal, and stock picking has never been more important in this highly uncertain environment. Still, you need to give the market some time to work through macro-economic issues such as tax uncertainties and where the Federal Reserve stands with interest rates as core inflation spreads. It looks like 2021 may be the year that big tech underperforms the S&P 500.

"It feels like we are experiencing a goldilocks stock market where equities are not too hot and not too cold, but just right. This is causing the post-earnings market consolidation that we are seeing." -- Dan Laboe

Have a Good Evening,
Jim Giaquinto