The stock market ended a holiday-shortened week of trading on a positive note Thursday, ahead of a Friday jobs report that was expected to be somewhat downbeat, given what was revealed in the March ADP National Employment Report. Not only did the jobless claims arrive higher than expected, but job expansion was also well below expectations in March.
What’s more, when compared to February, the number of available positions fell below 10 million, which occurred for the first time in roughly two years. Meanwhile, corporate layoffs have increased significantly on a year-over-year basis. Friday’s jobs report, however, ran counter to the ADP weak data. According to the Labor Department, payrolls grew by 236,000 for the month of March, below the upwardly revised 326,000 in February and lower than economist estimates for 238,000.
Just as with the ADP report, the non-farm payrolls for March showed increased signs of slowing. The unemployment rate nonetheless ticked lower to 3.5%. Economist had expected the rate to hold at 3.6%. While the payroll number grew slightly, the total was nonetheless the lowest monthly gain since December 2020. From an investment perspective, some investors might see the resilient economy as a concern, preventing the Federal Reserve from pivoting to a more dovish stance regarding interest rate.
These relative signs of a cooling jobs market and a softening economy could compel the central bank to pause its rate hikes at its next decision on interest rates, held on May 3. Ahead of that on Thursday, the Dow Jones Industrial Average rose 2.57 points, or 0.01%, to close at 33,485.29. Modest gains in Apple (AAPL), Microsoft (MSFT), Boeing (BA) and United Health (UNH) contributed to the gains. The S&P 500 index added 14.64 points, or 0.36% to end at 4,105.02, while the tech-heavy Nasdaq Composite gained 91.09 points, or 0.76%, to end at 12,087.96.
For the week, the Dow squeaked out a small gain, while the S&P 500 lost 0.1%, ending its 3-week win streak. The Nasdaq suffered the biggest weekly decline, losing 1.1%. During the week, utilities stocks and other defensive sectors were being snatched up, while high-growth tech stocks cooled off. Investors have appeared somewhat indifferent in terms of the economic data and gauging what the Fed is likely to do in response to the data. That question may be clearer next week as we approach the first quarter earnings season. Here are the stocks I’ll be watching.
Tilray Brands (TLRY) – Reports after the close, Monday, Apr. 10.
Wall Street expects Tilray to report a per-share loss of 6 cents on revenue of $150.13 million. This compares to the year-ago quarter when earnings were 7 cents per share on revenue of $151.87 million.
What to watch: Investors want to know what it will take to revive the cannabis rally, which catapulted Tilray to its highs of two years ago. Currently down 3.35% year-to-date, Tilray stock has lost 64% over the past year, compared to an 8% decline in the S&P 500 index. This includes a loss of 33% in six months. And when expanding that horizon to three years, the decline has been 56%. Although the Canadian cannabis company saw a slight uptick in revenue in the most recent quarter, that was largely due to a boost from closing the Montauk Beverage Company deal during November. While the management has expanded the company’s reach into international markets, investors are still waiting for the company to show it can compete effectively in the Canadian cannabis market or the wellness sector. The management aims to secure its niche in the THC-based products in the U.S. However, that too is a waiting game that has yet to bear fruit until the U.S. Federal government fully legalizes cannabis sales. The company has pivoted slightly by slowing down production at cannabis facilities to raise cash. But without a means to achieve sustainable revenue, profits are going to be hard to come by. As such, the company’s ability to move the business beyond the hope of the U.S. legalizing cannabis will be a key question on Monday’s earnings call.
Delta Airlines (DAL) – Reports before the open, Thursday, Apr. 13.
Wall Street expects Delta to earn 33 cents per share on revenue of $12.05 billion. This compares to the year-ago quarter when the loss came to $1.23 per share on $8.16 billion in revenue.
What to watch: Airline stocks have rebounded relatively well after suffering turbulence for most of 2022. With data showing that booking trends for March have cooled off, can the sector fully regain its crushing altitude? For the week that ended on March 19, U.S. airline bookings fell -3.0% compared to 2019. This is worse than the -1.2% pre-pandemic comparison for the prior week, according to Back of America which tracked credit and debit card data. Analyst Andrew Didora cited the weakness to a higher seat pricing, though the firm indicated that volume actually showed a modest improvement. Amid the turbulence, Delta Airlines is still on the rise, with the stock gaining 2.5% year-to-date and 10% over the past six months. More gains are not the horizon given that the airline industry is expected to see a strong travel demand for 2023. During the JPMorgan Industrial Conference held on March 14, Delta management noted their “demand is getting stronger.” Adding, “in the last 30 days, we’ve had the 10 highest sales days in our company’s history.” Ahead of the Q1 earnings report, the company is expected to benefit from revenue increases from international travel, where it has reported a gradual recovery, especially in Latin America and Transatlantic routes. As such, Delta remains one of the better bargains in transportation stocks.
Citigroup (C) – Reports before the open, Friday, Apr. 14
Wall Street expects Citigroup to earn $1.70 per share on revenue of $19.19 billion. This compares to the year-ago quarter when earnings were $2.02 per share on revenue of $19.19 billion.
What to watch: Commercial bank stocks such a Citigroup did not fare as well as investors expected in 2022, particularly amid a period of rising interest rates. Banks often benefit from increasing interest rates which increases the net interest margins and their overall profits. However, that was not the case for Citigroup, which suffered a near 30% decline in its stock during 2022, underperforming its bank peers. The stock is up modestly in 2023, rising 1.4%, but still trailing the 7% rise in the S&P 500 index. As with the rest of the sector, the fallout from the failure of Silicon Valley Bank has pressured Citigroup stock, which has fallen 12% over the past month, while the S&P 500 has risen 1.4%. But the bank has a sound strategy to outperform over the next 12 to 18 months. This includes the divestment of its global consumer bank, accelerated investment in wealth management and more investment in its Services division comprising Trade and Transaction Services and Security Service. Heading into the first quarter, investors will be looking for progress in these key areas. Meanwhile, with the stock trading at roughly 70% of its tangible book value, while paying dividend yield of 4.46%, Citigroup is a solid bargain in 2023, especially with a potential for the bank to resume its share buyback program.
JPMorgan Chase (JPM) – Reports before the open, Friday, Apr. 14.
Wall Street expects JPMorgan to earn $3.40 per share on revenue of $36.18 billion. This compares to the year-ago quarter when earnings came to $2.63 per share on revenue of $31.59 billion.
What to watch: With gains of close to 18% over the past six months, shares of JPMorgan Chase have been one of the better performing stocks in the financial sector. Despite the fallout from the failure of Silicon Valley Bank and uncertainty related to Credit Suisse (CS) which has pressured sector, JPMorgan’s consistency and operating efficiency is being rewarded for its ability to navigate economic headwinds to return value to shareholders. Spanning over the past decade, JPMorgan has grown earnings per share by more than 130%. What’s more, there is a case to be made that, given the bank’s size and reach, in the next few quarters, JPMorgan could benefit from the struggles of regional and community banks by realizing a higher rate of deposits. Accordingly, with the bank projected to grow EPS at an annual rate of 9% in 2023, JPMorgan appears grossly undervalued relative to expectations. What’s more, at the current valuation of $127 per share and priced at a forward P/E ration of 10, JPMorgan stock trades below the average price target of $154, making it a strong bargain for investors who are looking for exposure in the banking sector, especially when factoring its 3.13% dividend yield, which has grown at an average of almost 8% over the last five years.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
