Viewable Income (GME, NIO)
A A strong jobs report and the passage of a US debt ceiling bill that would prevent a US default sent stocks higher on Friday. Investors are also betting heavily that the Federal Reserve will hold off on rate hikes at its meeting later this month. Collective optimism helped the Dow Jones Industrial Average record its best day of the year on Friday, while the Nasdaq hit its highest level in more than a year.
The question is, can these gains be sustained? Given the level of stability in the US economy, this is hard to argue against. On Friday, the Labor Department reported that May nonfarm payrolls rose more than expected. Despite many headwinds, 339,000 jobs were added in May, beating estimates of 190,000. It is also the 29th consecutive month of positive employment growth. Despite the employment rate, the unemployment rate rose to 3.7% from the previous reading of 3.4%.
Average hourly wages, a key measure of inflation, rose 0.3% in May, in line with economists’ forecasts. Additionally, wages rose 4.3% on a year-over-year basis, beating the estimate by 10 basis points. It should be noted that the unemployment rate has increased, even though the labor force participation rate has remained the same. Moreover, the unemployment rate reached its highest level since October 2022, although it is still close to fifty-year lows.
There was also a reduction in average weekly working hours, which fell from 34.4 to 34.3. All of this contributed to the rise in stocks on Friday, as investors now believe that the Fed will be less inclined to raise rates with a slight increase in the unemployment rate. The Dow Jones gained 701.19 points, or 2.12%, to end Friday’s session at 33,762.76. The S&P 500 rose 61.35 points, or 1.45%, to end at 4,282.37. Tech heavyweight Nasdaq Composite added 139.78 points, or 1.07%, to end at 13,240.77.
How impressive was the Nasdaq? The Nasdaq ended its sixth straight week of gains with a 2% gain for the week, led by Tesla ( TSLA ) , among others, an 11% gain. You’d have to go back three years to find the last time he did this sequence. In addition to Tesla, Nvidia (NVDA), which is up 172% this year, has helped the Nasdaq outperform the S&P 500 and Dow Jones Industrial Average through 2023.
But again, in the bear market of 2022, the Nasdaq was punished the most of the three major averages. Thus, the index is only catching up with Dow Jones and S&P 500 in its current period. What happens now? As I said last week, stocks don’t look cheap anymore. But staying invested remains the best inflation-defying strategy. The main question remains, what will the Federal Reserve do about interest rates?
On the earnings front, here are the stocks I’m looking at this week.
stop game (EMG) – Final Final Reports, Wednesday, June 7
Wall Street expects GameStop to lose 12 cents per share on revenue of $1.36 billion. That compares with revenue of $1.38 billion in the year-ago quarter, when the loss was 52 cents a share.
What to watch: Meme stock mania hasn’t died down like it did a year ago, but GameStop remains one of the most subscribed stocks. The stock is up 27% year-to-date, outperforming the S&P 500’s 8% gain. about 23%. Currently trading at about $23 per share, the stock is down about 52% from its 52-week high of $48. The video game retailer demonstrated solid fundamentals, showing positive cash flow and an overall strong financial position. Last quarter, the company posted a surprise profit, even as it continued to struggle to grow revenue. Additionally, US video game sales fell year-over-year in April for the second month in a row. Total video game sales fell 5 percent to $4.12 billion in April from $4.32 billion in March. Currently, video game sales are down 2% year-to-date. Modest gains in console sales weren’t enough to offset the broader decline. This trend, if it continues, could affect GameStop’s performance in the future. The company is expected to generate about $6 billion in revenue for the fiscal year. Gross margins, currently around 25%, need to be much higher to maintain profitability. To date, management has done a great job of cutting costs. This should continue if video game sales continue to decline. However, the collectibles category was a bright spot in the fourth quarter, with revenue up 14% year over year. On Wednesday, GameStop should build on its fourth-quarter success and show that it’s playing well.
Nio Limited (NIO) – Before opening, Friday June 9
Wall Street expects Nio to post a loss of 41 cents per share on revenue of $1.68 billion. That compares with the year-ago quarter, when it posted a loss of 17 cents on revenue of $1.48 billion per share.
Watch: Shares of Chinese electric vehicle (EV) company Nio have been punished over the past six months, down about 40% against a 3.5% gain in the S&P 500. The company recently announced its May shipment figures. Over 6,155 vehicles. Not only was this Nio’s lowest in a year, it also represented an 8% sequential decline and a 12% year-over-year decline. There were questions at the start of the year as to whether Nio had bottomed out, but it didn’t. But there are still some reasons for optimism, given that the company operates in a high-growth region like China, which recently became the second-fastest growing electric car market in terms of sales. After nearly doubling to 87% annual growth in 2022, China alone will account for nearly 60% of global electric vehicle sales. Electric cars currently account for a quarter of all vehicles sold in China. Therefore, Nio may (this time) reach the lowest point of supply decline, making the growth schedule more favorable from now on. In addition, the company continues to expand additional production capacity. The main question is whether there will be enough demand to meet the increase in production. Its management expects revenue growth of 90% in fiscal 2023, driven by higher volumes. On Friday, the company could make a strong case for its value by delivering strong guidance for both top and bottom momentum, as well as for the next quarter and full year.
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