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Weekly Snapshot: Earnings to Watch This Week (ADBE, ORCL)

IInvestors continue to embrace the “don’t fight the Fed” mantra. With inflation at its highest level in 40 years and a yield curve moving noticeably closer to another inversion, the market was understandably in risk aversion mode. At some point, bottom buyers will come out of hibernation and signal that a bottom has been reached. We thought this happened two weeks ago, and there continues to be evidence to support this idea. But this week’s regression raised questions.

On Friday, the major averages ended sharply lower, thanks to the release of stronger than expected inflation data. Inflation in May rose to 8.6%, surpassing the 40-year high of 8.5% seen in March. This suggests that the high cost of living is here to stay. The data also triggered a sharp rise in Treasury yields. The 10-year Treasury rose 12 basis points to 3.16%, while the 2-year jumped 24 basis points to 3.06%. The market decoded this as ammunition for the Federal Reserve to remain hawkish in its attempt to rein in rising prices.

The Dow Jones Industrial Average plunged 880 points, or 2.73%, to end at 31,392.79. This is the worst daily percentage decline in the Dow Jones since May 18. The blue chip index lost nearly 5% for the week. The S&P 500 index lost 2.9%, down 116.96 points to close at 3,900.86, while the tech-heavy Nasdaq composite index lost 414.20 points, or 3, 52% to close at 11,340.02. For the week, the S&P 500 fell 5.1%, while the Nasdaq fell 5.6%. Unsurprisingly, even a drop of this magnitude could not attract value seekers.

The market has been anxious anticipating the Federal Reserve’s plan to fight high inflation, particularly the impact of interest rate hikes this year. Given May’s stronger-than-expected inflation reading, it’s possible the market’s worst-case scenario will materialize. Some Wall Street analysts had anticipated an even more aggressive pace of rate hikes this summer. Calls have been made for a 50 basis point hike in September, preceded by similar hikes in June and July. As for the latter, some traders are banking on a 30% chance of a 75 basis point rise.

That said, it would be premature to predict that the worst of the market correction is behind us. But with each leg lower, the buying opportunity becomes harder to ignore, given the resilience we have witnessed in economic and labor data. As such, I continue to believe that staying invested in the market is the best way to ward off inflation, especially given all the positive offsetting factors that still exist.

On the earnings front, here are the stocks I’ll be watching this week.

Oracle (ORCL) – Reports after the close, Monday, June 13

Wall Street expects Oracle to earn $1.17 per share on revenue of $10.52 billion. That compares to the year-ago quarter where earnings were $1.16 per share on revenue of $10.09 billion.

What to watch: With Oracle shares down 22% year-to-date and 20% over the past year, the risk-reward ratio has turned favourable, Morgan Stanley analysts say . At current levels, Oracle is an “interesting opportunity,” noted analyst Keith Weiss who rates the stock as an outperformer with a price target of $88. Weiss said there was “increased confidence” that the company could see a “modest revenue acceleration” in fiscal 2023 and surpass pre-pandemic levels for an extended period. Part of the thesis relates to the fact that the size of the global cloud computing market is expected to grow approximately 16% over the next four years, from $445 billion in 2021 to $947.3 billion by 2026. Oracle is poised to capture market share as the company’s digital transformation continues. Although Amazon’s AWS (AMZN) and Microsoft’s Azure (MSFT) are dominant cloud players, Oracle is gaining traction. Currently seen as a transformational player based on its business transition to a cloud subscription-based model, Oracle is due to demonstrate on Monday how it can become a future global cloud leader.

Adobe (ADBE) – Post Closing Reports, Thursday, June 16

Wall Street expects Adobe to earn $3.31 a share on revenue of $4.34 billion. That compares to the year-ago quarter where earnings were $3.03 per share on revenue of $3.84 billion.

Keep an eye on: Adobe stock has fallen 32% in the past six months, compared to 13% for the S&P 500 index. next two years, Adobe shares have been hurt by the recent correction in technology stocks. Notably, this despite the company’s strong execution, as evidenced by a 31% increase in first quarter revenue for the Creative Cloud segment and a 24% increase in the digital experience, driven by strong new user adoption. and subscription revenue. However, investors are concerned about slowing growth. The year-over-year consolidated revenue growth rate in the first quarter fell sharply to 9%, the lowest growth rate since 2018. Adobe’s stable year-over-year earnings per share growth the other was also a surprise. Adobe also spooked investors due to weak guidance. Management is cautious as digital marketing spending slows, which could limit revenue. But the stock is cheap, after the stock’s nearly 50% decline from all-time highs. And Adobe’s free cash flow yield is now close to 4.5%, near a five-year high. It may be time to bet on a recovery.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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