Stocks finished the week on a negative note as market participants sifted through the latest batch of earnings and economic reports. And while the blue-chip Dow Jones Industrial Average closed lower for the week, the broader S&P 500 and tech-heavy Nasdaq Composite extended their weekly win streaks to three.
At today’s close, the Dow was staring at a one-day decline of 0.2% at 53,732, the S&P 500 was off 0.2% at 7,785, and the Nasdaq was 0.3% lower at 26,729.
Despite Friday’s quiet finish, the three main equity indexes are near record highs — and they remain “in something of a sweet spot for now,” says Daniela Hathorn, senior market analyst at Capital.com.
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This week’s soft inflation data has diminished the threat of a Federal Reserve rate hike, Hathorn explains, while earnings remain supportive.
B. Riley says to buy the dip on hot AMAT stock
Applied Materials (AMAT) was the biggest name on the earnings calendar, though the chip equipment maker shed 5.1% after reporting its fiscal third-quarter results late Thursday.
AMAT beat on the top and bottom lines and gave fiscal fourth-quarter guidance that beat the Street’s estimates. But B. Riley analyst Craig Ellis says some investors may have been hoping for greater near-term gross margin upside.
Gross margin tells you how much revenue a company keeps after deducting costs required to make its products or services. AMAT said it expects fiscal Q4 gross margin to be flat on a quarter-to-quarter basis, at 50.4%.
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But Ellis believes today’s post-earnings pullback represents a buying opportunity on a company poised for “high-visibility EPS expansion.” He has a Buy rating on AMAT and a $700 price target, representing implied upside of nearly 40% on a stock that’s already doubled for the year to date.
Next week, we’ll start to hear from some of the country’s biggest retailers, including Home Depot (HD, -0.8%), which reports on Tuesday. Walmart (WMT, -0.4%) takes its turn on the earnings stage Thursday morning.
Retail sales unexpectedly fall
Ahead of these key updates on consumer spending, data from the Census Bureau this morning showed that retail sales unexpectedly fell 0.6% in July. Economists expected a 0.1% increase.
The University of Michigan’s Consumer Sentiment Index also fell short of estimates, with August’s preliminary reading sinking to 51.0 from July’s 55.2.
“A colossal double miss on retail sales and consumer sentiment is worrying investors, who fear that affordability pressures, dwindling savings and reduced hiring could mean the economy’s engine is on its last legs,” says José Torres, senior economist at Interactive Brokers.
The disappointing data follows “stronger tax refunds that were providing relief to personal wallets,” he adds, and “with that source of fiscal stimulus behind us, market participants are rightfully concerned about the potential for further deterioration in consumer momentum.”
Reddit will join the S&P 500 on Tuesday
Elsewhere on Wall Street today, Reddit (RDDT) popped 12.6% after S&P Global said the social media platform will join the S&P 500 ahead of the open this Tuesday, August 18.
RDDT will replace AvalonBay Communities (AVB, +0.1%), which is merging with fellow real estate investment trust (REIT) Equity Residential (EQR, 0.0%).
“Stocks tend to get a lift from inclusion in the S&P 500 because many trillions of passive dollars are held in products that track the index,” explains Kiplinger contributor Dan Burrows.
The Vanguard 500 Index Fund (VOO), the largest exchange-traded fund (ETF) in the world, has $1.7 trillion in assets under management — and is just one of many funds that will now have to buy shares in RDDT.
