The Nasdaq composite, up 1.7% in late-afternoon trading in the stock market today, has bullishly wiped away losses suffered over the prior three days. It’s now gunning for a rebound back above a key technical level, the 50-day moving average. Nasdaq component Applied Materials is having a joyous gain. New IPO Oatly (OTLY), which counts media titan Oprah Winfrey as a backer, surged more than 38% on its Nasdaq debut, hitting a high of 22.74.
Despite nice gains across the board among major equity indexes, however, for now IBD’s current market outlook remains at “Uptrend under pressure.”
Please read more about gauging the current general direction of the stock market in this key daily column, The Big Picture.
Oatly, the Swedish firm selling oat milk-based foods, debuted at $17 a share on the Nasdaq. It posted $140.1 million in first-quarter sales, up 66% vs. a year ago, and a net loss of 5 cents a share.
Please read more about Oatly in this new IBD story.
Beyond The Nasdaq Composite
So far on Thursday, at least one key index has already recovered the 50-day moving average, a key technical level.
The Nasdaq 100-tracking Invesco QQQ Trust (QQQ), covering the 100 largest nonfinancial companies in that exchange, rallied as much as 1.8% and is now back above its own 50-day line — for now — for the first time in nearly two weeks.
Commodity plays generally struggled, and so they weighed on the rebounds by the S&P 500 (up around 1.1%) and the Dow Jones Industrial Average (up 0.7%). At least seven of the Dow Jones’ 30 blue chip components rose 2 points or more, including beaten-down entertainment and streaming play Walt Disney (DIS). The stock recently took out its 50-day moving average but is still holding above its long-term 200-day line.
Small caps lagged. The iShares Russell 2000 (IWM) ETF, stuffed with small banks, gained 0.7%. SPDR S&P Mid Cap 400 (MDY) advanced 0.6% after surrendering more than 1.7% in the prior three sessions. But MDY is also retaking its own 50-day line.
Clearly, growth stocks were licking their wounds. Innovator IBD 50 (FFTY) climbed nearly 1%.
How To Beat Inflation: Makena Capital’s Lawrence Kochard
In an exclusive interview with IBD, Larry Kochard of Makena Capital says his investment firm thinks equities — using both a passive and actively-managed strategy — will help long-term investors achieve returns that exceed current inflation. Also, the former executive of endowment fund management teams at both the Univ. of Virginia and Georgetown University stresses that solid growth stocks, rather than value plays, will help his firm meet a long-term objective of producing returns of 5% or more in excess of inflation.
“Equity valuations are absolutely high now, so we see a low future return from equities. But we also see a fair equity risk premium, compared with what you gain vs. bonds,” Kochard, chief investment officer at Makena Capital, told IBD. “If you look at our portfolio, we have managers who are attracted to growth stocks at a reasonable price.”
How To Select Growth Stocks
What does this mean? Kochard sees potential in growth stocks that show profit margins and return on equity that exceed their industry sector peers; hold much less long-term debt vs. equity; and trade at a price-to-earnings ratio that’s on par with the S&P 500. So, Makena Capital is currently showing a bias within its equity exposure toward technology, health care and consumer discretionary companies.
In contrast, value stocks in sectors such as commodities and other hard assets can certainly do well in inflationary environments. But Kochard notes that in disinflationary economic conditions, equities in areas such as gold and other metals tend to do poorly. And so for Kochard, the average return for these types of stocks carry less attraction for long-term investment strategies.
The Menlo Park, Calif.-based asset manager has a staff of 75, including 25 actively engaged in investment research and portfolio monitoring. It offers both an “outsourced CIO” service to clients who desire stable long-term returns similar to the aims of a university endowment or large pension fund as well as expertise in “individual sleeves” of asset classes including venture capital, private equity, real estate and fixed income with bond duration time frames of up to five to seven years.
Some Stocks In This Sector Get Torched
Earlier this month, Wall Street responded to a surprise 4.2% April jump in the U.S. Consumer Price Index vs. year-ago levels. That soundly beat economists’ views for a 3.6% lift. Consumer prices also rose 0.8% month on month, blasting an Econoday consensus view for a 0.2% gain; excluding volatile food and energy prices, the CPI rose 0.9% vs. March and 3% vs. a year ago.
Kohl’s (KSS), discussed in the IBD Live show Thursday, gapped down at the open and fell 9% in massive volume. The poor action came despite a return to profitability for the big box clothing chain in the April-ended first quarter. Sales soared 60% from depressed year-ago levels to $3.89 billion.
KSS has made a solid rally, however, from its lows near 18 in the fall of last year.
Meanwhile, keep an eye on Applied Materials (AMAT), one of the chieftains of the chip equipment space, as it reports quarterly results after the close.
Big Earnings News Coming From This Major Tech Firm
Wall Street sees Applied Materials posting a net profit of $1.51 a share, up nearly 70% vs. a year ago, as revenue climbs 37% to $5.41 billion.
Yahoo Finance shows 20 analysts offering an EPS estimate for the large cap. The EPS estimates range from $1.50 to $1.56. So, the range is quite tight.
Applied Materials beat the consensus view by 26.5% and 8.1% in the prior two quarters.
According to IBD Stock Checkup, Applied Materials shows a Composite Rating of 96 on a scale of 1 (garbage) to 99 (grandeur).
The Composite rating combines fundamental, technical and fund sponsorship quality metrics into a single score. In general, focus on those stocks with a Composite of 95 or higher.
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