The Dow Jones Industrial Average experienced a robust surge of 511 points on Monday, even as yields in the Treasury market continued to rise. Notably, renowned fund manager Cathie Wood seized the opportunity to acquire some potentially undervalued stocks for Ark Invest. Furthermore, Microsoft (MSFT) and Amazon.com (AMZN) joined the ranks of prestigious companies, demonstrating promising performance, while fellow Magnificent Seven stock, Tesla (TSLA), faced a significant decline.
Meanwhile, three other noteworthy stocks displayed resilience and potential as they positioned themselves for entry points. Ollie’s Bargain Outlet (OLLI), FTAI Aviation (FTAI), and NetEase (NTES) exhibited relative strength and had established bullish bases.
Despite the increase in Treasury yields ahead of the Federal Open Market Committee (FOMC) meeting scheduled for Tuesday and Wednesday, the stock market rallied. Federal Reserve Chair Jerome Powell is set to address the outcome of the meeting. The 10-year yield rose by 4 basis points to 4.88%, and the two-year yield also increased by 4 basis points to 5.05%. The yield curve remained inverted.
Additionally, the Treasury disclosed plans to borrow $776 billion in the final three months of 2023, which was slightly lower than Wall Street expectations, with JPMorgan Chase analysts anticipating around $800 billion.
In the world of stocks, the Nasdaq displayed strength by surging 1.2%, largely attributed to reduced concerns about escalating conflicts. However, On Semiconductor (ON) was a notable underperformer, plummeting by approximately 21.8% after providing a disappointing outlook that fell short of Wall Street’s expectations.
The S&P 500 also saw a considerable increase of 1.2%. Western Digital (WDC) experienced a significant uptick of 7.3% after announcing its plans to spin off its flash memory business, redirecting its focus towards its hard-drive business.
Among the S&P 500 sectors, communication services, financials, and consumer staples performed exceptionally well. Energy showed the slightest gain. In contrast, small-cap stocks underperformed, although the Russell 2000 managed to rise by 0.6%. Growth stocks lagged behind the major indexes, with the Innovator IBD 50 ETF (FFTY) advancing by 0.7%.
Dow Jones Industrials emerged as the strongest performer among the major stock indexes, with a substantial gain of 511 points, representing a 2% increase. This surge was attributed to increased buying activity in McDonald’s stock, which concluded the session with a 1.7% gain, surpassing earnings and revenue expectations, along with a notable rise in global same-store sales.
Nike (NKE) emerged as the top gainer on the Dow Jones, with a remarkable increase of 3.9%. Verizon Communications (VZ) and Goldman Sachs (GS) also recorded solid gains, rising by 3.5% and 3.8%, respectively. On the flip side, Walgreen Boots Alliance (WBA) was the worst-performing stock on the index, albeit with a marginal decline of 0.2%.
Cathie Wood, a prominent fund manager, embarked on a strategy of purchasing declining stocks, recognizing potential bargains despite the associated risks. Ark Invest’s ARK Innovation ETF (ARKK) acquired over 221,000 shares of payments stock Block (SQ) on Friday. However, the stock’s value dipped by 2% on Monday and has experienced a decline of more than 39% in 2023.
ARKK also added nearly 106,000 shares of Beam Therapeutics (BEAM), which recorded a 2.6% increase on the day but remains down by nearly 49% for the year. Additionally, ARK Wood’s flagship ARK Innovation ETF acquired nearly 73,000 shares in Verve Therapeutics (VERV), which posted the most substantial gain among the three, rising by 6.5%, although it is down by about 50% in 2023. Notably, all three stocks currently trade below their 50-day and 200-day moving averages, indicating a bearish outlook.
While bargain hunting may be enticing for investors, IBD recommends focusing on stocks with strong earnings and price performance rather than laggards. It is advisable to seek out leaders in robust industries displaying superior earnings growth and sales. In other moves within ARK Invest’s ETFs, some stocks in DraftKings (DKNG), Shopify (SHOP), and General Motors (GM) were sold.
Two notable additions to the IBD Leaderboard Watchlist were Microsoft and Amazon stocks. Microsoft’s stock is forming a new handle entry and constructing a base, with an eye on a potential entry point of 346.20. The relative strength line for Microsoft stock demonstrates strength, and it trades above its moving averages. Microsoft has been bolstered by its advancements in artificial intelligence, particularly in collaboration with OpenAI to enhance its Bing browser and Office products. Earnings are projected to increase by 14% in fiscal 2024 and 15% in fiscal 2025.
Amazon stock earned a spot on the Leaderboard Watchlist as it retained gains from recent earnings growth. It is currently poised to clear a double-bottom base, with an ideal entry point of 134.48. However, it’s important to note that being on the Leaders Watchlist does not automatically qualify a stock as a prudent investment, especially in the present market conditions.
While most of the Magnificent Seven stocks posted gains, Tesla stock experienced a notable decline of 4.8% during the session, closing near its daily lows, and encountering resistance at the 200-day moving average.
Beyond the Dow Jones, there are three stocks worth considering for their relative strength and potential opportunities. Ollie’s Bargain Outlet is forming a flat base with an ideal entry point of 80.94 and boasts an impressive IBD Composite Rating of 95 out of 99. FTAI Aviation is approaching a flat base buy point of 37.98 and holds the fourth position in the Aerospace/Defense Industry Group, ranking among the top 2% of stocks in terms of market performance over the past 12 months. Furthermore, NetEase, a gaming software company, exhibited rising relative strength as it builds a flat base, with an ideal buy point of 110.82. Notably, big investors have been acquiring shares of NetEase, earning it an Accumulation/Distribution Rating of A, according to MarketSmith data.
In conclusion, the current challenging market conditions highlight the importance of building a watchlist, and the mentioned stocks offer potential opportunities to consider.
