Humbled By The Fed
Hey, y’all … it’s Fed week!
Are you ready? Are you pumped up to hear from the U.S. Federal Reserve on the state of the U.S. economy?
Rarely will you see a stock market more excited about the prospect of the Fed doing absolutely nothing than this week.
Economists expect Fed Chairman Jerome Powell to praise the strong May jobs report but stop short at doing anything that might upset the delicate balance on Wall Street.
That’s right. They don’t expect the Fed to do anything at this week’s Federal Open Market committee meeting. Interest rates will not budge, and Powell is expected to maintain the Fed’s low-for-longer stance on interest-rate policy.
That said, some analysts believe that more quantitative easing is on tap. John Briggs, head of strategy for the Americas at NatWest Markets, said he expects to “see a commitment to around $100 billion a month in U.S. Treasury purchases and $80 billion in mortgage-backed-security purchases with an open-ended time frame.”
If true, the additional easing could provide more juice for the stock market to fully recover from March’s pandemic-induced sell off.
The question is, will Powell pony up for more easing in the wake of May’s jobs data? I don’t think so. I think that sends the wrong message right now. I would expect Powell will keep additional easing in his back pocket for now, just in case he needs it later.
And if you’re still doubting the Fed’s ability to keep this bull market going, it might be time to hear a few words from billionaire hedge fund manager Stanley Druckenmiller: “Well I’ve been humbled many times in my career, and I’m sure I’ll be many times in the future. And the last three weeks certainly fits that category.”
Personally, I prefer DruckenPabst to DruckenMiller … but, what are you gonna do?
The lesson here is that you don’t bet against the Fed, especially when Powell goes all “unlimited stimulus” on you.
Editor’s Note: No one sleeps, eats, breathes and invests in America like Mr. America 2.0 himself — Paul .
He recently released a controversial interview where he reveals his No. 1 stock for rebuilding the U.S. — and our economy.
Good: Corona Consolidation
Are you ready for the next round of merger mania? We may be on the cusp of another buying spree in the biotech sector.
Over the weekend, Bloomberg reported that AstraZeneca PLC (NYSE: AZN) might be interested in snapping up Gilead Sciences Inc. (Nasdaq: GILD). Per the infamous “people familiar with the matter,” AstraZeneca is looking for a way into the coronavirus vaccine market and approached Gilead about a deal roughly a month ago.
Why Gilead? Well, the company already has emergency authorization for testing its COVID-19 vaccine. Furthermore, Gilead is also an industry leader in HIV and cancer research. But, honestly, the coronavirus vaccine is probably the biggest reason here.
Neither side has commented on or confirmed the news, but that hasn’t stopped Wall Street speculators. GILD jumped nearly 2% on the report, while AZN fell more than 3%.
Analysts predict that if a deal ever goes through, it could be the biggest biotech acquisition since Bristol Myers Squibb (NYSE: BMY) bought Celgene for $75 billion last year. And, FYI, BMY shares are up roughly 68% since the Celgene buyout.
Both companies are powerhouses in the biotech sector, and worth researching as potential longer-term holdings.
Better: Get Dunked
It’s time to make the donuts! Lots of donuts. We’re talking a 25,000-new-hires level of making donuts.
Dunkin’ Brands Group Inc. (Nasdaq: DNKN) said this morning that, due to rising demand amid the reopening, it will add 25,000 new employees. The Duke of Donuts didn’t specify a timeline for the hiring but noted that it will launch its first-ever nationwide employment advertisement campaign.
In addition to the demand and hiring news, KeyBanc upgraded DNKN shares to “overweight” from “sector weight” this weekend. Or, in laymen’s terms, to buy from neutral. Why can’t brokers just be consistent?
The ratings firm cited Dunkin’s strong execution during the pandemic and “the help of national advertising, value and digital loyalty.”
Digital loyalty? For Donuts? Oh, right. Dunkin’ has an app for that — one that helped drive May same-store sales from a decline of 23% to a dip of 15%. No, those numbers normally wouldn’t look impressive, but during the height of the lockdown, that’s some impressive management.
Keep your eyes on Dunkin’. This donut’s got legs. (Leggy donuts, eeeww…)
Best: Cutting Through the Forest…
RBC Capital Markets and Baird both believe they can see the forest for the trees when it comes to the world’s largest online retailer. The pair of ratings firms upgraded AMZN this morning due to strong customer demand amid the pandemic. (It’s a little late to the game, if you ask me.)
RBC reiterated its outperform rating on AMZN, lifting its price target to $3,300 from $2,700 and called Amazon “the best global play off of online retail.”
Meanwhile, Baird also reiterated its outperform rating and boosted AMZN’s price target to $2,750 from $2,500. Baird furthered is case by lifting its second-quarter revenue and operating income estimates, believing that Amazon will beat expectations for the current quarter.
AMZN shares came close to hitting another all-time high on the broker action, but profit-taking edged the shares lower by the close.
We’re nearing the end of earnings season, but that doesn’t mean there aren’t still opportunities to be had.
Once again, Chart of the Week honors go to Earnings Whispers on Twitter:
As you can see, the pool of companies reporting earnings dwindles considerably this week. However, there are some key hitters stepping up that you need to keep your eye on:
- Game Stop Corp. (NYSE: GME): How much longer can this video game retailer hang on? We may find out Tuesday after the close with Game Stop’s quarterly report. The company has already warned about a 33% to 35% drop in first-quarter sales. But investors apparently think the reopening will save Game Stop from a pandemic-induced collapse.
- Adobe Inc. (Nasdaq: ADBE): Adobe is one of the biggest surprises to come out of the pandemic market. ADBE stock has quietly clambered higher in the past three months to trade at all-time high levels. The company’s cloud-software packages continue to thrive despite nationwide lockdowns. Thursday’s earnings report should continue Adobe’s winning streak and send the shares higher.
- Lululemon Athletica Inc. (Nasdaq: LULU): Athleisure-specialist Lululemon will release the most-anticipated report of the week. Analysts are expecting strong results from LULU, with several analysts lifting their price targets on the shares ahead of this Thursday’s quarterly report.
And that’s a wrap for today, but you bet that we’ll keep you up to speed with everything exciting (or unexciting) in this week’s heaping helping of earnings.
Until next time, stay Great!
Editor, Great Stuff