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Action Plan for Stock Investments: The V-Word, with Q3 Earnings Ahead

Volatile with a capital “V” spells out the past week in the stock market. The rally attempt initiated by a two-day midweek lead survived, paving the way for a possible follow-up day in the coming week. It also underscored some clear resistance levels, as analysts lowered expectations for the now impending Q3 reporting season. Reports are due from JPMorgan Chase (JPM), Wells Fargo (WFC), United Health Group (A H) and Delta Airlines (DAL), to only cite a few. Inflation data and retail sales figures have the potential to stir the market further.




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Stocks to Watch: The Biggest Stocks Need a Market Rally

As the stock market struggles to break its downtrend, a number of top stocks flirted with or cleared buy points or early entries. Arista Networks (A NET), Cardinal Health (HAC), medical shock wave (SWAV), World wrestling entertainment (WWE) and Eli Lily (THERE IS) all exhibit strong relative strength lines, reflecting their outperformance relative to the market. But they all need the brief attempt at a market recovery so far not to stall. Arista Networks and Shockwave had tested trendlines, before sharp pullbacks on Friday. WWE is above early entry and 3% below a traditional buy point in a seven-week cut basis. Eli Lilly dances around a buy point, Cardinal finds support, both in flat bases.

Econ calendar: To watch: PPI, CPI and retail sales

After Friday’s strong jobs report, a 75 basis point rate hike on November 2 is all but certain, with the latest odds above 80%. But Thursday’s consumer price index, released at 8:30 a.m. ET, could influence the Fed’s next move, at the Dec. 13-14 meeting. Wall Street economists expect the CPI inflation rate to decline to 8.1% in September from 8.3% the previous month. The producer price index read on wholesale inflation, which fell by double digits to 8.7% in August, is published Wednesday at 8:30 am. Friday’s retail sales report, released at 8:30 a.m., is expected to show a modest 0.2% gain as consumers battle high prices.



Stock Market Perspective: Hang on to Sloopy

The week’s two-day bounce sent the Dow industrials, the Nasdaq composite and the S&P 500 to a brief short-term resistance test at their 21-day moving averages. The market’s first advance in four weeks was also on track for its best week since June, but that fell apart after Friday’s payrolls report. Other averages, including the S&P Midcap 400, S&P Smallcap 600 and Russell 2000 sent more positive signals – all technically staged what could be considered tracking days during the week. But rallies based solely on minor indices rarely succeed. A return above the 21-day support of any or all major indices, especially decisive moves that would also signal a follow-up, could potentially put the stock market back on more constructive footing.

Third Quarter Financial Data: JPMorgan, Wells Fargo, Citigroup

The big banks launched their third quarter results on Friday, with Wells Fargo, JPMorgan, Citigroup (VS) and PNC Financial Services Group (ANC) all gears before the opening bell. Banks face greater liquidity constraints and must fund loan growth with higher-cost deposits, liquidations of debt and securities portfolios, noted Morgan Stanley analyst Betsy Graseck. Rapidly rising interest rates and rising capital requirements are causing the credit cycle to accelerate. So financial institutions with excess capital, liquidity and positive operating leverage are better positioned for the long term, she says. Wells Fargo’s adjusted earnings are expected to fall 3.5% to $1.13 per share on a slight drop in revenue to $18.77 billion. Observers expect JPMorgan’s earnings to fall 22% to $2.90 a share, while revenue climbs 8.4% to $31.13 billion.

Dow Earnings: United Health, Walgreens

Dow industrials head into third-quarter reporting season down more than 16% for the year and are feeling the bottom of the stock market correction. In addition to JPMorgan, United Health Group and Walgreens Boot Alliance (WBA) report, with seven more expected the following week. UnitedHealth’s earnings growth is expected to accelerate to 20%, following an 18% gain in the second quarter. The expected revenue growth of 11.3% would be slower than the 12.6% gain in the second quarter. For Walgreens, analysts forecast a third straight quarter-over-quarter decline, with profit of 77 cents marking a 34% drop from the year-ago period.

Analysts lower third-quarter earnings bar

During the third quarter, analysts lowered their EPS expectations for S&P 500 companies by 6.6% overall, to $55.51 on Sept. 29 from $59.44 on June 30, according to FactSet. Analysts normally cut expectations during a quarter, but over the past five years the average drop in quarterly expectations has been 2.3%. The average decline over the past 80 quarters, or 20 years, has been 3.8%. Third-quarter EPS revisions marked the largest reduction since Q2 2020. The sectors that suffered the largest cuts were Materials (-14.9%), Communication Services (-13.1%) and consumer discretionary (-11.9%).



DWAC will vote on Trump’s extension

Acquisitions of the digital world (DWAC) is the special purpose acquisition company with which Donald Trump’s Trump Media & Technology Group, the parent company of Truth Social, is attempting to merge into a public company. Shares are down 83% since March as the Security & Exchange Commission conducts a year-long investigation into the deal. DWAC shareholders are due to meet on Monday to determine whether there is support for extending the merger deadline. The level of support remains uncertain. If the nays win, the merger could be canceled and DWAC potentially liquidated. DWAC shares fell 5% on Tuesday news that Elon Musk had changed course and his $44 billion Twitter (TWTR) the acquisition was once again in the works, raising the possibility that Donald would soon return to his massively popular Twitter account – perhaps in time for November’s midterm elections.


Stock market profits in a nutshell


Tuesday:

Pinnacle Financial Partners (PNFP) is expected to post earnings growth of 8% to $1.89 per share and revenue growth of about 17% to $400 million with its Tuesday results. The Nashville-based bank has beaten earnings estimates every quarter since the second quarter of 2020.

Wednesday:

PepsiCo (DYNAMISM) will release third-quarter 2022 results before trading opens on Wednesday. Analysts expect earnings growth of 3% to $1.84 per share. Revenue is expected to rise 2% to $20.7 billion, according to FactSet.

Two major IT services companies based in India are reporting during the week. Wipro (SPIRIT) publishes its fiscal results for the second quarter on Wednesday. Analysts estimate EPS at 6 cents, down one penny from a year earlier. Analysts forecast revenue of $2.79 billion, up 7%. There is speculation that Wipro could announce a new share buyback. Largest peer Infosys (INFI) reports its fiscal second quarter results early Thursday. Analysts estimate EPS at 18 cents, up one penny from a year earlier. Revenue will rise 12% to $4.51 billion, analysts estimate. Currency exchange rates could squeeze earnings, analysts said.

Thursday:

Delta Airlines (DAL) will release its third-quarter results before the market opens on Thursday. Wall Street expects earnings to soar 416% to $1.55 per share, while revenue is expected to rise 40% to $12.9 billion.

Attached (QUICK) announces third quarter results early Thursday morning. Analysts predict EPS of 48 cents, a 14% year-over-year increase, for the industrial supplies company. Wall Street expects sales to grow 20% to $1.8 billion, according to FactSet.

progressive (RPG) is expected to see a 1,089% EPS rebound to $1.51 on an 11% revenue gain to $13.07 billion. The auto and home insurer reported premium growth in July and August.

black rock (noir) adjusted earnings are expected to fall 29% to $7.73 per share for its Thursday morning results. Meanwhile, the investment giant’s revenue is expected to fall 14% to $4.3 billion.

Trade metals (CMC) is expected to report results for the fiscal fourth quarter ended September early Thursday. Analysts expect the leading producer of steel rebar, or rebar, to earn $2.26 a share, up 79% from a year ago. Revenue is up 19% to $2.42 billion. CMC stock is about 17% off its peak, but its Relative Strength line is hitting new highs, reflecting an outperformance against the S&P 500.

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