With the Dow Jones Industrial Average dipping 0.28% last week, after a strong four-week showing (up 5.39%) in the last month), angst over a looming economic downturn is beginning to mount.
Interest rates, in particular, are a trigger for investor concern.
The U.S. mortgage sector is feeling the heat already, with 30-year mortgage rates already pricing over 5%, after two years of rates in the 2.5%-to-3.5% range.
That interest rate scenario is likely to scare off home buyers and curb soaring home prices, and it could do so more than people think.
“Look how fast rates have climbed in 2022 – this is why home-buying has ground to a halt,” notes Clarise Zoleta on TheStreet.com. “A $500,000 home with a $400,000 mortgage (assuming you have $100,000 to put down) cost you $1,686 a month at 3% in the Fall but now, in April, it’s costing you $2,147 a month – an increase of $461/month (27.3%) in just one quarter.”
“Even if you have a $100,000 job and just got a 10% raise, the take-home is only going to be +$6,000 annually to pay the extra $5,532, so you’d better hope nothing else went up in price or you’ll have to cut back on other things,” Zoleta wrote.
Outside of interest rates, the same economic and geopolitical woes are crimping market performance.
“The first full week of the quarter was challenging,” TheStreet’s Action Alerts Plus team stated on April 8. “The Dow Jones industrial average was little changed, while the S&P 500 moved lower and more pronounced declines were put in by the Nasdaq Composite Index and the Russell 2000.”
Uncertainty is high. “The factors that weighed on the end of the March quarter – the Russia-Ukraine war and new sanctions, China’s renewed Covid lockdown, inflationary pressures — remain with us,” the team wrote. “What the market, its watchers and economists, are trying to ascertain is what this all means for the global economy, earnings and subsequently the stock market.”
Going forward, market watchers and economists will be looking to see if the virus spreads to more cities and provinces in China, a potential threat to alternate shipping channels that could be disrupted by additional lockdown measures.
“It also goes without saying by now the same group will be watching developments on the Russia-Ukraine war, especially following the recent comment by U.S. officials that it may last for months or even years,” the team stated. “As they do all of that, odds are they will be factoring in how the surge in commodities and other input costs as well as global food prices will play out as next week brings with it the start of the March quarter earnings season.”
As a result, “We continue to see those weighing on first half earnings expectations for the S&P 500 basket of stocks.”
With chaos the order of the day in the trading markets, TheStreet’s investment gurus look for stability and opportunity in these “buy the dip” candidates this week.
Disney $131.87. 5-day performance (-) 3.74%.
Shares of Disney (DIS) – Get Walt Disney Company Report generally traded sideways from 2015 until April 2019. That’s when it unveiled its streaming plan, which has now become the trio of Hulu, Disney+ and ESPN+.
“The company has had tremendous success with these platforms, boasting 129.8 million subscribers as of Disney’s most recent quarterly update,” TheStreet’s Bret Kenwell wrote.
Additionally, the stock was trading solidly until Covid hit in the first quarter of 2020.
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“Despite the damage to its parks, studio and cruise ship businesses, Disney shares ultimately erupted off the Covid lows, rallying from $81 to more than $200 in less than a year,” Kenwell noted.
Now reality is catching up to the Mouse House.
Before a dip on April 7 – the stock was down about 1.5% – the shares were trying to regain the 50-day moving average. If that occurred, it would have opened the door for a potential rally up to the March high and the $150 area,
“Those levels aren’t off the table, but to get there Disney stock needs to take out this week’s high and the 50-day first,” Kenwell said. “On the downside, the shares are dipping below the 200-week and 10-day moving averages. The big concern is this week’s low. Should Disney stock break below this mark at $136.28, it not only loses this week’s low, but also last week’s low.”
If the selling picks up in the scenario, Kenwell says he finds it “hard to avoid looking” at the $128 to $130 zone. Disney stock came oh-so-close to filling that gap at $128.04, but came up a little short a few weeks ago.
“Now we see whether Disney can consolidate the gains and hold this week’s low,” he added. “Otherwise lower prices may be in store again.”
SoFi Technologies $7.87. 5-day performance (-) 15.65%.
“Whether you look at SoFi as a meme stock or growth stock, it’s had a tough go of late,” Kenwell said.
Recently, SoFi cut its 2022 revenue and Ebitda guidance after the U.S. government extended the pause for student-loan payments.
While SoFi shares rallied 36.5% at one point, they’re now back down to the levels traders saw three weeks ago.
“When I look at the SoFi chart, I see the stock undercutting last month’s low at $7.73 and doing so with bullish divergence on the RSI measure,” Kenwell said. “Notice how the RSI is not making new lows while the stock price is.”
Now this divergence alone doesn’t make the stock a buy. It’s just one piece of the puzzle.
“Aggressive bulls can look at SoFi stock as it reclaims last month’s low and leaves a new low in play at $7.64,” Kenwell added. “The concern here is the rest of tech and the growth market. If those stocks — like ARKK — continue lower, SoFi will likely get pushed lower, too.”
“So that’s the risk, but at least that risk is contained.”
Apple $169.79. 5-day performance (-) 2.42%
dApple Maven, Daniel Martins, takes a look under the hood and gauges where Apple may be headed.
“The equities market has been soft so far this year, as the tech-rich Nasdaq remains in correction territory. Apple stock, on the other hand, has declined a much tamer 5% YTD,” Martins said.
But make no mistake: Apple’s path to outperformance in 2022 has not been without ups and downs. “For example, the stock dipped as much as 15% by mid-March, trailing the returns of the S&P 500 at times,” Martins added. “However, AAPL has consistently recovered more strongly.”
“After flirting with the $3 trillion market cap once again, Apple share price declined from nearly $180 to an intraday low of $170 in a matter of a few days,” he said.
Historically, Apple stock has been a better buy after pullbacks. Therefore, the recent decline in share price could be seen as an opportunity for new investors to own shares at early December 2021 prices.
But there are a couple of caveats to the buy-on-weakness approach, Martins noted
“First, the strategy doesn’t always work in the short term,” he said. “In fact, Apple stock often trends over a period of days or weeks, suggesting that the recent decline could extend further.”
Second, the most recent 5% pullback puts AAPL stock at a drawdown of only 6% from the all-time high of only about three months ago. “The charts show corrections of at least 15% are the ones that tend to produce the best one-year gains for dip-buyers,” Martins noted.
Martins doesn’t think that short-term traders or buy-the-dip fans should get too excited about AAPL’s recent softness. “This is more likely to be market noise than a rare opportunity to own Apple on the cheap,” he said.
Instead, Martins believes that investors considering buying Apple stock at current levels should be willing to think longer term. Those investors need to weigh whether or not AAPL is a good name to buy and tuck away inside a diversified stock portfolio over the next several years.
“From that perspective, I find it hard not to like Apple stock, even at current prices that are not too far from the historical peak,” he said. “According to TipRanks, not a single analyst believes that Apple stock is a sell. About four out of five think that AAPL is a buy, while one in five maintains a hold rating.”