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Stock Market Today: Stocks Stick the Landing in Successful Short Week

Oct 1, 2022

The major indexes finished the holiday-shortened week with a flourish as a recent relief rally chalked up sizable gains across the four-day period.

Federal Reserve Bank of St. Louis President James Bullard said Friday that "it is a little early to have this debate about recession probabilities in the U.S." Meanwhile, he continued to pound the table for continued aggressive interest-rate increases – remember, the Fed is just more than a week removed from its rate hike since 1994 – to repel rapidly rising consumer prices.

"Bullard's optimism is justified if inflation [does] manage to peak," says Edward Moya, senior market strategist at currency data provider OANDA. "The best-case scenario for equities is that inflation continues to show signs of peaking and the consumer remains strong."

What do consumers have to say about that? Well … the University of Michigan's Surveys of Consumers sentiment index dropped to 50.0 for June – its lowest reading since the index was established in the 1970s. But the report had a bright spot: Expectations for inflation in the year ahead dipped to 5.3% from 5.4% in the preliminary report, while the five-to-10-year outlook eased to 3.1% from 3.3%.

All 11 SP 500 sectors finished solidly in the green Friday. The financial sector (+3.8%) pounced, with names like Wells Fargo (WFC, +7.6%) and PayPal Holdings (PYPL, +5.2%) breathing a large sigh of relief. Other cyclical sectors, such as industrials (+3.5%) and materials (+4.0%), enjoyed significant gains too.

The Nasdaq Composite (+3.3% to 11,607) walked away with a 7.5% weekly gain. The SP 500 (+3.1% to 3,911) improved by 6.4% over the four-day period, and the Dow Jones Industrial Average (+2.7% to 31,500) was up 5.4%.

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Analysts keep souring on the market, however. John Butters, senior earnings analyst for FactSet, notes that the pros have been lowering their target prices on SP 500 companies over the past few months.

"Since peaking at 5,344.26 on January 20, 2022, the bottom-up target price for the SP 500 [calculated by aggregating median target price estimates for all the companies in the index 12 months out] has declined by 7% to 4,987.28 on June 23, 2022," he says. "This week marked the first time the bottom-up target price for the index has dipped below 5,000 since Aug. 23, 2021."

If there's a bright side, even with the recent decline in analysts' target prices, Wall Street thinks the SP 500 will improve by more than 30% over the next 12 months.

stock chart for 062422

YCharts

Other news in the stock market today:

  • The small-cap Russell 2000 roared ahead 3.2% to 1,765.
  • U.S. crude futures jumped 3.2% to finish at $107.62 per barrel.
  • Gold futures notched a marginal gain to settle at $1,830.30 an ounce.
  • Bitcoin cleared the $21,000 level, improving by 1.6% to 21,239.04. Bitcoin trades 24 hours a day; prices reported here are as of 4 p.m.) 
  • Carnival (CCL) soared 12.4% after the cruise operator reported earnings. In its fiscal second quarter, CCL reported an adjusted net loss of $1.9 billion – narrower than the $2.1 billion loss it incurred in the year-ago period – and revenue of $2.4 billion, a nearly 50% sequential rise. The company also said booking volumes for all future sailings were almost double what they were in Q1 – and marked the best quarter for bookings since the pandemic started. Carnival's earnings reaction created a halo effect for fellow cruise stocks Royal Caribbean (RCL, +15.8%) and Norwegian Cruise Lines (NCLH, +15.4%).
  • FedEx (FDX) was another post-earnings winner, surging 7.2% after its results. In its fiscal fourth quarter, the shipping giant reported adjusted earnings of $6.87 per share on revenue of $24.4 billion, up 37% and 8% year-over-year, respectively. "The revenue growth was entirely due to FDX leveraging its pricing power with 10%-plus rate hikes at all segments," says CFRA Research analyst Colin Scarola (Strong Buy). "By design, the rate hikes helped slow volume, allowing FDX's previously overloaded network to operate more efficiently, in our view. Labor and equipment-related costs were up just 0% and 3% year-over-year, respectively, driving May quarter operating margin to 9.2% vs. an average of 6% since the pandemic began. We see further margin improvement in fiscal 2023 and 2024, and believe shares are materially undervalued even in a recession scenario."

Buffett Keeps Hoovering Up Occidental

One of this week's most interesting developments comes courtesy of Berkshire Hathaway (BRK.B). On Wednesday night, the company disclosed that Warren Buffett is continuing to buy shares of Occidental Petroleum (OXY) with both hands.

Specifically, Berkshire recently bought 9.6 million OXY shares worth about $530 million, according to a regulatory filing. Add that to some massive first-quarter buying, and that brings the equity portfolio's stake in the integrated energy firm to 152.7 million shares worth nearly $9 billion at current prices. Buffett owns $10 billion worth of 8% preferred shares and 84 million warrants, too; all in, he owns about one-third of Occidental.

And at least one analyst thinks Uncle Warren could be set up to buy the rest.

Read on as we explore why Occidental Petroleum could go from part of the Berkshire Hathway equity portfolio holding to a fully owned entity, joining the likes of Dairy Queen, GEICO and BNSF Railway.


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