- CPI inflation data, U.S. bond auctions, earnings in focus.
- Palantir shares are a buy with upbeat earnings and guidance on deck.
- Disney stock will struggle amid weak profit and revenue outlook.
- Looking for more actionable trade ideas to navigate the current market volatility? InvestingPro Summer Sale is on: Check out our massive discounts on subscription plans!
Wall Street's main indices ended lower on Friday, capping off a losing week as investors digested the latest U.S. jobs report and disappointing earnings from Apple (NASDAQ:AAPL).
For the week, the blue-chip Dow Jones Industrial Average declined 1.1%, while the benchmark S&P 500 and technology-heavy Nasdaq Composite fell 2.3% and 2.9%, respectively, to notch their worst weeks since March.
The week ahead is expected to be another eventful one as investors continue to gauge the outlook for inflation, the economy, and interest rates.
On the economic calendar, most important will be Thursday’s U.S. consumer price index report for July, which is forecast to show headline annual CPI accelerating to 3.3% from the 3.0% increase seen in June.
The data will be key in determining the Federal Reserve’s next move at the September FOMC meeting. As of publication time, fed funds future trading implied only a 13% probability of a rate hike next month.
Elsewhere, the Treasury market could also be in the spotlight in the week ahead, with a key U.S. 10-year bond auction on the agenda amid renewed fears over rising yields.
Meanwhile, the pace of earnings slows down next week, though quarterly updates are still expected from notable companies such as United Parcel Service (NYSE:UPS), Eli Lilly (NYSE:LLY), Wynn Resorts (NASDAQ:WYNN), Tyson Foods (NYSE:TSN), and Wendy’s (NASDAQ:WEN).
Some of the other high-profile reporters include Alibaba (NYSE:BABA), Roblox Corp (NYSE:RBLX), Datadog (NASDAQ:DDOG), Twilio (NYSE:TWLO), Trade Desk (NASDAQ:TTD), Rivian Automotive Inc (NASDAQ:RIVN), Lucid Group Inc (NASDAQ:LCID), and Li Auto Inc (NASDAQ:LI).
Of the 422 companies in the S&P 500 that have reported quarterly earnings so far, 79.1% have beaten Q2 EPS estimates, while only 59% have topped revenue expectations, which is the lowest level of revenue beats in three years, according to Refinitiv data.
Regardless of which direction the market goes next week, below I highlight one stock likely to be in demand and another which could see fresh downside.
Remember though, my timeframe is just for the week ahead, August 7 - August 11.
Stock To Buy: Palantir
I expect Palantir's (NYSE:PLTR) stock to outperform in the week ahead as the data mining company’s latest earnings report will easily top estimates in my view thanks to soaring demand for its new artificial intelligence platform.
Palantir is set to deliver its second-quarter update after the U.S. market closes on Monday, April 7 at 4:05PM ET. A call with CEO Alex Karp is then scheduled for 5:00PM ET.
Market participants expect a sizable swing in PLTR shares following the print, as per the options market, with a possible implied move of 15.5% in either direction.
According to an InvestingPro survey, Palantir’s earnings estimates have been revised upward five times in the past 90 days, compared to just one downward revision, as Wall Street analysts grow increasingly bullish on the enterprise software company.
The upward revisions follow blowout earnings and guidance in May, which sent PLTR shares surging higher.
As per InvestingPro, Palantir is seen earning $0.05 a share in the June quarter, improving substantially from a loss of $0.01 in the year-ago period, due to the positive impact of ongoing cost-cutting measures.
Revenue is forecast to increase 12.8% year-on-year to $533.6 billion, as it benefits from robust demand for its data analytics tools and services from both government and commercial clients amid the current geopolitical environment.
If confirmed, that would mark the highest quarterly sales total in Palantir’s history, reflecting strong execution across the company.
Looking ahead, I believe Palantir’s management will provide upbeat profit and sales guidance for the rest of the year thanks to strong prospects in the field of artificial intelligence.
The data analytics software maker’s generative AI platform - which it calls AIP - allows commercial and government sectors to use large language models based on their own private data sets.
PLTR stock ended Friday’s session at $18.20, just below a recent 52-week peak of $20.24 reached on August 1, earning the Denver, Colorado-based company a valuation of around $38.5 billion.
Shares are up a whopping 183% year-to-date, outperforming the broader market by a wide margin over the same period, amid the ongoing rally in AI-related tech stocks.
Notwithstanding the recent turnaround, the stock still trades well below the software maker's all-time intraday high of $45.00 set in late January 2021.
Stock To Sell: Disney
I believe Disney's (NYSE:DIS) stock will suffer a difficult week, with a potential breakdown to new 52-week lows on the horizon, as the entertainment giant’s latest financial results will likely reveal another slowdown in both profit and revenue growth.
Disney’s earnings for its fiscal third quarter are due after the closing bell on Wednesday, August 9 at 4:05PM ET and are likely to take a hit once again from a weak performance in its key streaming and linear TV businesses.
Options trading implies a roughly 6% swing for DIS shares after the update drops, which would be the third report since CEO Bob Iger returned to the helm of the company in November 2022.
Underscoring several headwinds Disney faces amid the current macro environment, an InvestingPro survey of analyst earnings revisions points to mounting pessimism ahead of the FQ3 report, with 19 out of 20 analysts slashing their EPS estimates in the last three months.
Consensus expectations call for Disney to post earnings per share of $0.99 for the three-month period ended July 1, dropping 9.2% from EPS of $1.09 in the year-ago period due to higher expenses related to the Disney+ streaming service as well as higher sports programming and production costs.
Meanwhile, revenue is seen rising 4.8% year-over-year to $22.53 billion, thanks to what I expect would be a relatively strong global performance in its iconic theme parks division.
Perhaps of greater importance, all eyes will be on Disney’s streaming subscriber tally, with Wall Street analysts expecting Disney+ to lose 1.7 million subscribers during the quarter as consumers become more cost-conscious about their media spending habits.
Beyond day-to-day operations, I expect Iger to address several challenges the company currently faces on the post-earnings call, including an ongoing legal and political battle with Florida Governor Ron DeSantis, as well as the recent writers' strike in Hollywood.
DIS stock - which fell to a 2023 low of $85.16 on July 25 - closed at $86.30 on Friday. At current levels, the Burbank, California-based company has a market cap of $157.7 billion.
The entertainment company’s stock has underperformed the broader market by a wide margin so far in 2023, with DIS shares down -0.7% year-to-date.
Disclosure: At the time of writing, I am short on the S&P 500 and Nasdaq 100 via the ProShares Short S&P 500 ETF (SH) and ProShares Short QQQ ETF (PSQ). I regularly rebalance my portfolio of individual stocks and ETFs based on ongoing risk assessment of both the macroeconomic environment and companies' financials. The views discussed in this article are solely the opinion of the author and should not be taken as investment advice.