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Weekly Market Review: U.S. Stocks Cap Best Week Since 1974

Traders had only four days to work with before the U.S. markets closed on Friday for a holiday. Even so, the S&P 500 gained 12.5% for the week – the best performance we’ve seen in over 45 years.

Bulls were encouraged by the fact that the spread of the coronavirus appears to be peaking. In addition, the Federal Reserve opened up its purse strings again on Thursday.

The Fed committed another $2.3 trillion in emergency funds, to help small- and mid-size businesses, as well as State and Local governments.

Coronavirus Update

The main driver of volatility these days remains fear of the global spread of the coronavirus. At this point, there are about 1.7 million global cases, with over 102,000 deaths reported. That figure includes around 500,000 cases in the U.S., where more than 18,000 have died.

The growth trajectory in key areas, including Western Europe and New York City, appears to have slowed down in recent days. Experts believe this has been aided by “social distancing”; including widespread business closings, which will almost certainly send the global economy into a recession in 2020.

This downturn is already showing up in the weekly initial jobless claims report each Thursday. The reading came in at 6.6 million this week, matching a record high from the week before.

What to Expect Next Week

Following the extended weekend, first-quarter earnings season kicks off next week. Johnson & Johnson (JNJ), JP Morgan (JPM) and Wells Fargo (WFC) will get the ball rolling on Tuesday. Several more banks headline the calendar on Wednesday, while Delta Air Lines (DAL) will be the one to watch Thursday.

Given the global spread of the coronavirus, actual results from the March quarter will likely be all over the map. However, investors will be paying close attention to what (if any) guidance that management teams provide.

Going into the reports, Refinitiv predicts that aggregate S&P 500 profits fell 9% in the first quarter. On the other hand, revenue is expected to increase fractionally. To date, 88 companies in the S&P 500 index have pre-announced lower earnings for the period, compared with 40 that have boosted expectations.

On the economic front, Tuesday offers a look at March retail sales in addition to the duo of Industrial Production and Capacity Utilization. On Thursday, the consensus is calling for another 5 million fresh weekly jobless claims. Friday offers the Leading Economic Indicators report, from The Conference Board.

We know that deciding what and when to buy can be challenging for any investor. This is especially true when uncertainty is high and sentiment can quickly shift from Bull to Bear.

However, the fact remains that attractive investments are out there if you’re willing to dig a little deeper.

One such Technology name is worth a closer look and is our Stock of the Week.

Stock of the Week: Microchip (MCHP)

The company makes a wide range of semiconductors and offers something for both growth and income investors. The stock gained 23% this week and we believe this momentum can continue throughout 2020. Here’s why:

Despite the global impact of the coronavirus, Microchip recently boosted its revenue guidance for the March quarter. On Wednesday, management said that it now expects $1.33 billion of sales, representing a 3% sequential increase.

The company also experienced record bookings in the period; while noting that some customers may be stocking inventory, ahead of potential disruptions in the supply chain. To adapt to evolving global uncertainty, Microchip is cutting salaries, maintenance, and marketing costs. 

Not only is the company faring better than most these days, but the stock is also attractively priced. Microchip is currently valued at 14.3x expected forward earnings of $5.60 a share. This is a discount to both the broader market and industry median of 20.6x.

In addition, the company pays a solid quarterly dividend of $0.366 a share (1.9% yield). Management boosted the payout in February, which can be covered with just 26% of profits.

It’s also worth noting that MCHP carries a Smart Score of 8/10 on TipRanks. This proprietary score utilizes Big Data to rank stocks based on 8 key factors that have historically been a precursor of future outperformance.

On top of the positive aspects mentioned already, the Smart Score indicates that the company has seen insider buying, in addition to improving sentiment from analysts and financial bloggers.

FYI: This is just 1 of the 20+ stocks selected for the Smart Investor portfolio. That’s where we share more detailed insights on our weekly stock picks.

You may also want to learn more about how we use TipRanks indicators to find stocks that are primed to outperform. Discover the Smart Investor portfolio here >>

Wishing you a world of investment success!

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