Stock Market Correction Completed!

July 08, 2017


Looking at the data presented for the past couple of weeks, it appears that the stock market correction has happened – is now over – and the rally is set to continue, with stocks set to roar higher.

The past week saw the major indexes finally make weekly gains after an encouraging June jobs report where the Labor Department said 222,000 jobs were created in the U.S. These positive gains were also boosted by a rebound in tech stocks which helped off-set falling oil prices.

For the week, the Dow Jones Industrial Average (DJIA - 21,414.34) rose 0.4%.

The S&P 500 Index (SPX - 2,425.18) ended the week up 0.1%, whilst the Nasdaq Composite (COMP - 6,153.08) bounced back to rise 0.2%.

Although the jobs report was extremely positive, wage growth – an indicator measuring inflation -- was only up 0.2 percent which somewhat tempered the stock market reaction. This wage growth data is important in determining the future decision of the Federal Reserve in raising interest rates once more this year.

Now, heading into the new week, watch for releases of some major quarterly reports – where Citigroup, Wells Fargo and JPMorgan Chase are all scheduled to report second-quarter results.

JPMorgan Chase & Co. (NYSE:JPM) should report a solid earnings report on Friday. Citigroup Inc. (NYSE:C), having shone in the Fed’s recent stress and capital tests, is also capable of presenting itself well. Wells Fargo & Co. (NYSE:WFC), with its recent scandals, is a sideline case.

Currently, earnings are expected to grow 6.2 percent; however, this figure seems to be understated and should be closer to 10 percent – and tech earnings may come to the fore again as the fundamentals are still apparent.

One area to consider on Monday is “cybersecurity”, a fast growing business; by 2021, it is estimated that the market size will reach $202 billion, a 65% increase from 2016.

This is not a surprising prediction with worldwide ransomware attacks being more frequent -- WannaCry, took control of the computers of an estimated 10,000 companies and 200,000 individuals, resulting in massive downtime for companies, most notably for England's National Health Service – and there are no signs that cybersecurity attacks will slow down any time soon.

Barracuda Networks Inc. (NYSE:CUDA), a cybersecurity company will report Monday, after the market closes, with analysts expecting full year sales of $91.31 million for the current fiscal year, with estimates ranging from $371.29 million to $381.00 million. Barracuda Networks posted sales of $86.65 million in the same quarter last year, which suggests a positive year over year growth rate of 5.4%.

Analysts are very bullish on the stock with 11 of 16 rating CUDA stock a "buy" or "strong buy," with zero "sell" recommendations on the books. As well, the shares have an average 12-month price target of $28.56 -- representing annual-high territory. 

PepsiCo, Inc. (NYSE:PEP) will deliver the first major earnings report of the week, Tuesday, before the market opens, and is expected to report good numbers because it is well managed and has great exposure.

So, for the week ahead keep the following in mind as market drivers:-

  • "The Dow Theory Buy Signal" should continue to gain traction. So, watch the Dow Jones transportation average which has been lagging the broader market for the bulk of this year, but has begun playing catch-up in recent weeks – which bodes well for the broader market.If the transportation sector, which is diverse – airlines, trucking, railroads, Federal Express and UPS --  sees further upside, the market could rise along with it.
  • John Williams, the president and CEO of the San Francisco Federal Reserve, will speak on Monday, and should help give further indication of Fed hikes.
  • Janet Yellen, the chair of the Federal Reserve, will begin a two-day testimony about the state of the U.S. economy on Capitol Hill in Washington D.C. – further clarification of rate hikes.
  • On Thursday, the Producer Price Index, which measures the average changes in selling prices that domestic producers get for the products they manufacture, will release its numbers for June.
  • Friday's Consumer Price Index numbers, which measures how much consumers pay on average for goods and services, combined with PPI should tell where U.S. inflation stands.

Therefore, a more optimistic view on the stock market seems appropriate at this stage.  If you are having difficulties knowing how to play the coming week, or for that matter, the rest of 2017, or need an extra boost in your portfolio strategy, get on board with the members of Stock Options Made Easy.

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