September 22, 2021

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Comms, Defensive Stocks Rise After Weak Payrolls Report

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The Nasdaq Composite managed to set new all-time highs on Wednesday, but that belied a much more mixed session for stocks as investors digested a few fresh economic reports.

Today’s headliner was an extremely weak August employment reading – a precursor to Friday’s government-sourced jobs report. ADP data showed private payrolls rose 374,000 last month – well short of estimates for 600,000.

“Given the Delta impact and weak economic data seen throughout August, it was not shocking to see a miss,” says Michael Reinking, senior market strategist for the New York Stock Exchange. “The magnitude of the miss was quite large, but as we pointed out yesterday, the survey has not been a great indicator for the official BLS employment report over the last year and change.”

The ISM manufacturing composite, however, did show strength, improving to 59.9 in August from 59.5 in July (anything above 50 indicates expansion).

“With production gaining momentum in August, we see encouraging signs that factories continue to make progress in realigning production with demand, despite ongoing challenges from supply bottlenecks,” Barclays economist Jonathan Millar says.

Meanwhile, construction spending rose 0.3% month-over-month in July to top expectations.

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Nonetheless, most of the market’s reaction seemed focused on the lackluster jobs report. The defensive real estate (+1.7%) and utilities sectors (+1.4%) were Wednesday’s best performers, and relative strength in communication services (+0.5%) pushed the Nasdaq 0.3% higher to a record 15,309, and also helped the S&P 500 achieve a marginal gain to 4,524.

Struggles in energy (-1.5%) and financials (-0.6%), however, dragged on the Dow Jones Industrial Average (-0.1% to 35,312).

Other news in the stock market today:

  • The small-cap Russell 2000 managed another day of outperformance, gaining 0.6% to 2,287.

  • Vera Bradley (VRA, -9.4%) stock took a big hit after the women’s accessories maker reported second-quarter results that fell short of analysts’ consensus estimates. VRA reported adjusted earnings per share (EPS) of 28 cents on $147.1 million in revenues – below the 33 cents per share and $153.6 million Wall Street was calling for. Nevertheless, Small Cap Consumer Research analyst Eric Beder reiterated his Buy rating on the stock. “We believe the company’s management continues to do the right things in the near and longer term to create a more diversified and resilient business model that, as the world normalizes, will register strong consistent operating results and justify a higher multiple,” he says.

  • Ambarella (AMBA), on the other hand, surged 27.4% in the wake of its earnings report. In its second quarter, the fabless semiconductor company brought in adjusted earnings of 35 cents per share on $79.3 million in revenues. Analysts, meanwhile, were expecting EPS of 25 cents on $75.7 million in revenue. Stifel analysts chimed in after the results. “Overall, we believe AMBA is approaching a key inflection in its business, with the security camera inventory digestion now largely behind it, and computer vision (CV) hitting its stride ahead of a long secular growth runway,” they say. “Coupled with a pristine balance sheet, we maintain our Buy on AMBA as a key, long-term beneficiary of CV/Edge Processing.”

  • U.S. crude oil futures eked out a 0.1% gain to settle at $68.59 per barrel. Earlier today, the Organization of the Petroleum Exporting Countries and their allies, collectively referred to as OPEC+, confirmed its plan to gradually increase oil production each month.

  • Gold futures slipped 0.1% to $1,816 an ounce.

  • The CBOE Volatility Index (VIX) declined 3.1% to 15.97.

  • Bitcoin rebounded 2.0% to $48,229.60. (Bitcoin trades 24 hours a day; prices reported here are as of 4 p.m. each trading day.)

stock chart for 090121

stock chart for 090121

YCharts

What Happened to the Year of the Value Stock?

Have we seen the end of value’s day in the sun?

The more value-focused Dow was the leading major index through the end of May. But the script has since flipped, with the Nasdaq up 11.4%, the S&P 500 gaining 7.6% and the DJIA up just 2.3%.

“After several strong quarters for value stocks, the last few months have seen a sharp reversal in favor of growth,” says Ben Inker, head of asset allocation at asset management firm GMO. “Understandably, this has led some investors to question whether value’s run is over and whether value investing makes sense as anything more than a tactical play.

“The valuation disconnect between value and growth has reached extreme levels today. We’ve heard many reasons why ‘it’s different this time’ and growth is destined and deserving to outperform. At these relative valuation levels, our long-term bet is the opposite.”

In the shorter-term, many value choices are likely to overlap with the “recovery trade” as America tries to put COVID in the rearview mirror. But if you’re just looking for value wherever it can be found, you have options just about everywhere on the market spectrum. For instance, while many investors think of small caps as mostly growth plays, smaller companies can indeed be attractive from a price standpoint.

But if you prefer the safety of larger firms, these 16 value stocks represent more traditional ways of approaching the investing style.

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