S&P Rises More Than 2% in July

The final week of July was a bit of a dud, but the month as a whole was very solid for all the major indices as they fought through ongoing inflation concerns to each gain by well over 1%.

The S&P was by far the biggest winner with a rise of 2.3% in July, which pretty much equaled its June performance and marked the sixth straight positive month. The Dow rose 1.3% and the NASDAQ advanced 1.2%, which is a rare bit of agreement between two indices that often go their separate ways during this recovery. For instance, the Dow was down 0.8% in June while the NASDAQ soared over 5%.

It was certainly a month of extremes. We saw numerous record highs, but also growing inflation worries and the rise of the delta variant. Those two issues led to the worst single-day performance of the Dow this year. The index plunged nearly 2.1% (or about 725 points) on Monday, July 19… but it finished that week with a gain of 1%!

The second half of July also included earnings season, which has been solid thus far despite some high-profile disappointments. According to our Director of Research Sheraz Mian, the nearly 60% of S&P members that have already reported beat earnings expectations by 89.2% and topped revenue forecasts by a record 87.5%. Make sure to read his new Earnings Preview article titled: “Is Big Tech Growth Really Decelerating?”

Of course, it’s really hard to impress this market. Oftentimes, it focuses more on the misses, especially when it’s a leader like Amazon (NASDAQ:AMZN). Last night after the close, the retail giant reported earnings that beat the Zacks Consensus Estimate by nearly 24%... but it also missed the revenue forecast and offered a weak Q3 guidance. Shares dropped more than 7.5%.

That report took a toll on Friday’s session, along with other sharp drops like in Pinterest (NYSE:PINS, -18.2%). As a result, the NASDAQ was down 0.71% (or about 105 points) today to 14,672.68 and dropped 1.1% for the week. Meanwhile, the S&P slipped 0.54% to 4395.26 and the Dow was off 0.42% (or almost 150 points) to 34,935.47, marking declines of around 0.4% each for the five days.

Get some rest over the weekend because next week is going to be just as busy. The FAANGs may have reported, but there’s still tons of earnings season left. We’ll also be getting the turn-of-the-month data deluge that culminates with the Government Employment Situation report next Friday.

Most of the data of late has shown an economy that is definitely recovering from the pandemic, but not to the extent that would accelerate policy changes. The Fed has pretty much supported that viewpoint in recent statements. And earnings season has been solid even if the market doesn’t always reward the results.

Now, let’s see what August throws into the mix!

Today's Portfolio Highlights:

Stocks Under $10: It’s finally time to say goodbye to one of the biggest success stories among all ZU services. Cassava Sciences (NASDAQ:SAVA) had routinely been in the top performers list ever since it was added back on January 5. It focuses on the early detection and treatment of neurodegenerative diseases, such as Alzheimer’s. Brian was getting a lot of subscriber questions after the stock plunged 30% the other day in sympathy with some “bad” data for a competitor. But he held onto the name. But today SAVA was the focus of a “really ugly headline” about scientists critiquing its study results. The editor decided to play it safe and get out of the name just in case there’s another “re-pricing” in the Alzheimer’s space. Therefore, he sold SAVA on Friday for an impressive 856% return in just about seven months. Read the complete commentary for all the specifics on why Brian made this move today.

ETF Investor: The portfolio swapped out dividend growth ETFs on Friday by selling WisdomTree U.S. Quality Dividend Growth ETF (DGRW) and buying iShares Core Dividend Growth ETF (DGRO). Both of these names focus on stocks with potential for sustainable dividend growth. They have similar performances over the past five years and have similar holdings. So why buy DGRO and sell DGRW? Well, DGRO has a lower expense ratio and has more exposure to financials, which Neena wants as we move slowly but surely toward tapering. Plus, selling DGRW gives the portfolio an opportunity to bank a 98.5% return. Make sure to read the full commentary for more on the editor’s move.

Technology Innovators: As promised in last night’s commentary, Brian made an addition to the portfolio on Friday. He picked up Celestica (NYSE:CLS), a leading electronics manufacturing services company that serves the computer and communications sectors. The editor thinks we’ll see a solid post earnings drift higher, as CLS just reported a beat-and-raise quarter. That result makes eight straight positive surprises with an average beat of 15.5% over the past four. Rising earnings estimates have made the stock a Zacks Rank #1 (Strong Buy). Brian also reached the “point of no return” with International Game Technology (NYSE:IGT), which continues to drop on COVID fears. He sold the name today for a loss. Read the full write-up for more on today’s action. By the way, this portfolio had the top performer among all ZU names today as Silicon Motion Technology (NASDAQ:SIMO) climbed 16.6% after strong quarterly results. Grid Dynamics (GDYN) also made the Top 5 with a rise of 10.4% for the service's second double-digit winner of the day.

Headline Trader: "The public equity market looks exceptionally toppy with the incredible mega-cap tech earnings (except for Amazon) in the rearview mirror and monetary tightening on the horizon. This past week has illuminated a shift in investor sentiment as this bull market matures.

"We came from a buy anything and everything bull run in the last 3 quarters of 2020 to an overweight value approach in the first half of 2021, and now we are entering the mature side of this stock market cycle. Investors are pulling profits on their biggest winners while holding on to quality names: companies with healthy balance sheets and a secular profitable growth outlook.

"Investors are taking on a risk-off strategy as we enter August. Traders are trying to time a broader market correction (10%+ pullback), which has been moving its way to the forefront of market sentiment. On average, there is at least one broader stock market correction each year, and many analysts are projecting this to occur sometime next month, but I remain skeptical." -- Dan Laboe

Have a Great Weekend!
Jim Giaquinto