FINANCIAL STOCKS KICKS OFF Q2 EARNINGS SEASON

DJIA: 52-wk: +16.72% YTD: +4.47% Wkly: +0.66%

S&P 500: 52-wk: +26.56% YTD: +16.72% Wkly: +1.95%

NASDAQ: 52-wk: +34.35 YTD: +22.28% Wkly: +3.50%

Invesco S&P Equal Weight ETF: 52-wk: +10.21% YTD: +3.73% Wkly: -0.37%

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U.S. STOCKS:

Rose to more records Friday after a highly anticipated report on the job market bolstered Wall Street’s hopes that interest rates may soon get easier. Altogether, this data reinforced belief on Wall Street that the U.S. economy’s growth is slowing under the weight of high interest rates.

EARNINGS SEASON GETS STARTED THIS COMING WEEK:

Of course, investors care more about the future and will be watching what demand for consumer and business loans looks like in the face of higher-for-longer interest rates and sticky inflation. PEP & DAL report on July 11, big banks on July 12, JPM, WFC, C & Bank of New York releasing results.

NVIDIA STOCK DROPS. THE AI CHIP MAKER GOT A DOWNGRADE:

Nvidia stock was down a touch early Friday. The chip maker received a rare downgrade from a Wall Street analyst. Nvidia shares were down 1.7% at $126.16 in early trading. The stock closed up 4.6% on Wednesday before trading was suspended for the Independence Day holiday. Nvidia shares have risen 159% this year to date through to Wednesday’s close. That compares with a 16% rise in the S&P 500 index and a 21% rise in the Nasdaq Composite Index over the same period.

That rally has led New Street analyst Pierre Feragu to conclude that there might not be much more value to be had in the stock for now.

“Upside will only materialize in a bull case, in which the outlook beyond 2025 increases materially, and we do not have the conviction on this scenario playing out yet,” Feragu wrote in a research note on Friday.

Feragu lowered his rating on Nvidia stock to Neutral from Buy, with a one-year target price of $135. The target is based on a price-to-earnings multiple of 35 times Feragu’s forecast for Nvidia earnings.

“Although Nvidia remains the strongest franchise for AI datacenters, near-term expectations and valuation justify a more prudent view on the stock,” Feragu wrote.

WHY STOCKS ARE ON PACE FOR A HISTORIC SECOND HALF:

Stocks have been on a tear this year. And the year is only halfway through.

YTD, the Dow is up 4.47%, the S&P is up 16.7%, and the Nasdaq is up 22.3%, with both the S&P and Nasdaq each making another new all-time high again on Friday. That’s the 33rd new high this year for the S&P, and the 21st for the Nasdaq.

And the best part is that it looks like there's a lot more upside to go.

Especially after all of the major indexes finished in the green for the first half of the year, since that typically means more gains to follow in the second half.

So, I'm expecting the gains to continue throughout the rest of the year. And it's easy to see why.

With a resilient economy, a strong jobs market, upward trending sales and earnings estimates, and household incomes remaining near record highs, it gives the market plenty of reason to keep moving higher.

Here are some additional reasons why the second half of 2024 is shaping up to be historic.

Presidential Cycle

Presidential election years have a long track record of success.

And the 4-year Presidential Cycle perfectly illustrates this.

It shows that year 4 (that's this year), is the second-best year of all four years (second only to year 3, which was last year, when the market gained 24%).

Simply put, stocks typically do well in Presidential election years.

And this year is shaping up to be another winner as well.

THIS WEEK’S INTERESTING SECTOR PIECE IS ON FINANCIAL STOCKS:

Financial stocks are starting to look more compelling, says Michael Cuggino, president of the Permanent Portfolio Family of Funds. But investors should err on the side of caution, he says, and look for companies that generate a decent chunk of revenue from fee-based businesses and not just spread income on loans.

“Financials are interesting, but you have to be a little careful,” he says. “I like companies with a more diversified portfolio of businesses,” noting that he owns Morgan Stanley, Charles Schwab, Visa, and State Street.

Beaten-up regional banks, which have been hit due to concerns over the rapid drop in the value of commercial real estate loans, could be tempting too. The SPDR S&P Regional Banking exchange-traded fund is down 7% in 2024 and trades at 11.6 times earnings estimates, compared with a price/earnings ratio of 16 for the Financial Select Sector SPDR ETF. Even though there were several regional bank failures in 2023—and the near collapse of New York Community Bancorp earlier this year—large regional banks still have healthy balance sheets.

John Mowrey, chief investment officer of NFJ Investment Group, argues that banks with good credit quality in economically strong markets in the Southeast and other Sunbelt states should hold up well. He owns superregionals PNC Financial Services Group, Truist Financial, and U.S. Bancorp, and smaller Texas bank First Financial Bankshares. “Regional loan exposure matters,” Mowrey says. “These banks are connected to strong microeconomics throughout the U.S.”

I’m keeping an eye on the IWM (Russell 2000). I believe if it rallies to a new 52-week high and joins the party, the market will continue higher.

— Richie

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