Three consecutive days of profit-taking within the market’s biggest winners sent Wall Street lower again on Friday, prompting some skeptics to assert that the anticipated long-overdue selloff has finally arrived. But those who are are in the bulls’ camp were encouraged by the late reversal that lifted all three major averages off session lows.
While there’s still a perceived disconnect between Wall Street and Main Street, there continues to be positive signs of an economic recovery evidenced by better-then-expected August jobs report. The U.S. economy regained 1.4 million jobs in August, according to data from the Labor Department. This is better than the 1.2 million jobs economists were expecting. As it stands, the unemployment rate is now at 8.4%, down from 10.2%. But it wasn’t all great news.
While hours worked rose 0.1 hour to 34.6 hours, showing a steady increase, the report showed that private-sector payrolls rose by a smaller 1 million. What’s more, the July jobs data was revised down slightly to 1.73 million. Nevertheless, when assessing the pandemic-induced carnage from April and May, the economy has made a significant leap. At the same time, investors interpreted the upbeat jobs report as one more piece of data policymakers will use to delay additional fiscal stimulus.
On Friday the Dow Jones Industrial Average declined 159.42 points, or 0.56%, to close at 28,133.31. The Blue Chip index, which rose in positive territory before falling back to end the session, was dinged by, among others, shares of newly-added Salesforce (CRM), which declined 3.89%. Other Dow titans such as IBM (IBM), Microsoft (MSFT), Walmart (WMT) and Disney (DIS) contributed to the declines. The S&P 500 dropped 0.81% to close at 3,426.96, while the tech-heavy Nasdaq Composite lost 144.97 points, or 1.24% to end the day at 11,313.13.
All told, previously unloved sectors such as commodity cyclicals caught a bid, while other highflying segments such as technology sold off. Financial markets in the U.S., including the Nasdaq and the New York Stock Exchange, will be closed on Monday in observance of Labor Day — the unofficial start of the Fall season. Has this past week been an early indication of the type of fall this will be?
In the meantime, here are this week’s stocks I’ll be watching.
Slack (WORK) – Reports after the close, Tuesday, Sep. 8
Wall Street expects Slack to lose 3 cents per share on revenue of $209.1 million. This compares to the year-ago quarter when the loss was 14 cents per share on revenue of $144.97 million.
What to watch: Slack stock has been seemingly left out of the work-from-home (WFH) market rally over the past six months. While the stock is one in a basket of WFH companies that are seen as beneficiaries during the pandemic, Slack (up 4.5% in six months) has grossly underperformed the likes of Zoom Video (ZM), DocuSign (DOCU) which have posted respective 6-month gains of 216% and 141%. Slack’s cloud-based work-focused collaborative communications platform allows users to send messages, images, documents, and more to groups or individuals. But with increased competition from, among others, Microsoft (MSFT) and Google (GOOG, GOOGL), Slack on Tuesday must show that not only can it carve out enough market share as the global workforce shifts digitally, but that it can also translate its growth into sustainable long-term profits.
Lululemon (LULU) – Reports after the close, Tuesday, Sep. 8
Wall Street expects Lululemon to earn 56 cents per share on revenue of $847.38 million. This compares to the year-ago quarter when earnings came to 96 cents per share on revenue of $883.35 million.
What to watch: After a 63% rally year to date, has Lululemon’s stock stretched too far? While the yoga specialist continues to dominate retail, positioning itself as the leader of the secular health and wellness trend, valuation concerns have emerged. Citigroup analyst Paul Lejuez last week cut his rating on LULU stock from Buy to Neutral. “We have to ask ourselves if we can realistically recommend buying LULU at $400 with a call it can go to at least $460 over the next 12 months,” wrote Lejuez. In other words, the analysts believes the stock is priced for perfection, particularly amid increased competition from Nike (NKE) and Under Armour (UA), among others. But that’s not the first time Lululemon, which is positioned to dominate a $3 trillion global wellness market, has heard the valuation argument.
Zscaler (ZS) – Reports after the close, Wednesday, Sep. 9
Wall Street expects Zscaler to earn 3 cents per share on revenue of $118.61 million. This compares to the previous quarter when earnings came to 7 cents per share on revenue of $86.11 million.
What to watch: Cybersecurity stocks like Zscaler — up 150% in six months — have been among the biggest market out-performers since the March lows. Amid the rapid global pandemic, there has been increased demand for better security as companies have adopted a work-from-home mindset. This shift have fueled a rise in demand for laptops not only with pre-installed security software, but also a surge in virtual private networks — those that allow employees to connect to the office remotely. Zscaler has grown to become the biggest provider of cloud-based web security gateway on the market. The company’s cloud platform enables customers to route data traffic to external data centers where Zscaler houses its software tools.
Peloton Interactive (PTON) – Reports after the close, Thursday, Sep. 10
Wall Street expects Peloton to post earn 11 cents per share on revenue of $574.86 million. This compares to the previous quarter when the loss came to 2 cents per share on revenue of $524.60 million.
What to watch: Is any additional upside already priced into PTON stock? That’s the main question heading into the quarter as investors have watched the shares surge some 200% in six months, compared to 9% rise in the S&P 500 index. While the market assumes Peloton is well-positioned to disrupt the fitness industry through its at-home connected fitness subscription platform, the stock last week made a new all-time high. But JPMorgan isn’t worried about valuation. Recently initiated with an Overweight rating, while adding the stock as one of its overall picks, JPMorgan believes Peloton can still deliver significant gains, noting that the company’s biggest near-term challenge is keeping up with elevated demand. The analyst assigns a 12-month price target of $105, which calls for 30% premiums from current levels.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.