Google parent Alphabet (GOOGL), a Magnificent Seven stock and artificial intelligence leader, and Eli Lilly (LLY), fueled by FDA approval of its GLP-1 weight-loss drug, encompass a few of the key themes that have powered the stock market this year. But this weekend’s watch list comprising five S&P 500 names near buy points has a twist: Google stock is among four of the five that took a spill after their latest earnings reports, only to reverse sharply higher.
S&P 500 Rally
The post-earnings resurgence of GOOGL, PANW, MA and MAR probably says as much about the nature of the S&P 500 rally as it does about the individual stocks.
In some cases, investors may have initially overreacted to company trends, like Google’s Cloud deceleration. Yet after some tough receptions for recent earnings reports, Wall Street’s mood turned very forgiving as inflation, jobs and spending data softened. That has allowed the Federal Reserve to back away from rate-hike threats, even as the 10-year Treasury yield tumbled following a test of 5%. Now markets are looking ahead to a Fed rate cut in the first half of next year.
That has sparked the S&P 500’s four-week 10.7% rally. There hasn’t been a sharper four-week percentage move since last fall’s brisk S&P 500 rally off the bear-market bottom through Nov. 11.
If you’re looking for a bigger S&P 500 point move over four weeks, you have to go back to the Covid-shutdown rally through April 17, 2020.
If there’s a problem, it’s that Wall Street may have turned too forgiving because investors have stopped worrying. The market fear gauge has fallen to pre-Covid lows, a potential precursor to a pullback.
Be sure to read IBD’s daily afternoon The Big Picture column to stay in sync with the market’s underlying trend and what it means for your trading decisions.
GOOGL stock tumbled 9.5% on Oct. 25 and kept falling after Q3 revenue edged past estimates, growing 11% to $76.7 billion, but operating income fell a touch short amid higher expenses.
Alphabet’s Cloud unit saw 22% growth to $8.4 billion, down from 28% growth in the June quarter. But Mizuho sees that as transitory, with growing AI adoption set to offset clients’ cost-control efforts. The research firm kept a buy rating on GOOGL stock with a 155 price target.
Alphabet, which has a 37% share of global digital ad revenue, saw search and and YouTube ad revenue grew 11% to 12% in Q3, faster than the industry, Needham analyst Laura Martin noted. She lifted her price target to 160 from 140.
Still, the ongoing antitrust trial over Google’s search dominance could be an overhang, with a verdict expected in the first half of 2024.
GOOGL stock slipped 1.3% to 136.69 on Friday. Alphabet’s move above its 50-day line, around 133.50, earlier in the week offered an early entry point. The official buy point is 141.22 from a seven-week cup base, according to MarketSmith.
GOOGL stock’s relative strength line, the blue line in IBD charts that tracks a stock’s progress vs. the S&P 500, had been right near an all-time high before its earnings mishap. However, the snapback rally hasn’t made up the lost ground for its RS line.
Market Rally Looks Great; Why That Could Be A Problem
Eli Lilly was IBD Stock Of The Day on Nov. 20 as shares set up following the FDA approval of its new weight-loss drug, Zepbound. It is based on the same drug, tirzepatide, behind its Mounjaro diabetes treatment.
Zepbound is being offered at a 20% discount to Novo Nordisk‘s (NVO) competing drug, which could drive better insurance coverage and update, Leering Partners analyst David Risinger said in a research note.
LLY stock has a 625.87 flat-base buy point. A move past the Nov. 20 high of 604.86 would break a trend line from the recent Nov. 8 high, flashing an early entry.
NVO stock skipped into a buy zone on Friday, rising 2.1% to clear a 104 buy point.
Palo Alto Networks stock inched into buy range on Friday, rising 1.1% to 266.08 — just clear of a 265.90 buy point from a five-week flat base.
PANW stock briefly tripped below its 50-day moving average on Nov. 16, trading as low as 234.15 following its prior afternoon fiscal Q1 earnings report.
PANW’s 66% earnings growth to $1.38 a share easily topped estimates, and revenue modestly beat, growing 20% to $1.878 billion. The firm also raised EPS guidance above views. The problem, to the extent there was one, came because billings growth of 16% was $45 million below consensus and full-year billings guidance also lagged, noted William Blair analyst Jonathan Ho.
The issue isn’t demand or even sales, but customers’ preference for shorter-term deals amid higher interest rates and cash-management challenges, Ho wrote.
Yet Ho says that Palo Alto is moving closer to its “strategic goal of becoming a single platform vendor solution for the cybersecurity space.” Palo Alto, he says, is one of the few vendors that customers may trust to provide a single platform because of its ability to innovate. Further, the macro environment and budget pressures may play to PANW’s strengths.
Mastercard took its earnings spill on Oct. 26, falling 5.6% to 364.59 as it gapped below its 200-day moving average. But the credit card and debit carb network operator has since gone on a tear. Friday’s 0.5% rise to 412.50 left MA stock near a 418.60 buy point from an 11-week flat base.
Mastercard posted 26.5% EPS growth to $3.39, comfortably above $3.21 estimates amid a lower tax rate. Revenue growth of 14% to $6.53 billion was in line.
MA stock fell as analysts noted slightly softer trends to start Q4. Mastercard indicated that the slowing trend was primarily related to a tougher year-over-year comparison due to earlier expansion and the timing of Social Security payments. In other words, the resilient consumer story is still intact.
Meanwhile, Visa (V) stock has fared even better, striding past a 250.06 buy point as it climbed 4.7% to 254.30 last week.
Marriott stock took a brief trip on the down escalator on Nov. 2 after its Q4 outlook “underwhelmed,” according to Barclays, which trimmed its price target to 208, keeping an equal weight rating.
Marriott offered a Q4 EPS range of $2.04 to $2.13, below the $2.19 consensus.
Yet MAR stock, after sliding more than 4% intraday to 180.75, finished off 1.6% on the session.
The easing of Fed fears and interest-rate pressures — and the strong performance of other travel-related names — have given MAR stock an updraft.
MAR rose 1.5% to 208.93 last week, closing just below a 210.98 buy point from a 15-week cup base. Marriott’s RS line is just below its August multiyear high.
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