What happened
2022 has been brutal for the stock market so far, especially for growth stocks that have seen stock prices soar in recent years. Macroeconomic concerns such as rising inflation, rising interest rates and geopolitical conflicts undermined the values of many former Wall Street treasures.
But on Friday, some of these slumping stock charts took a positive turn as the economy showed some signs of long-term stabilization and strength.
For example, vegetarian food innovator More than meat (BYND 13.67%) had taken a 54% haircut from new year to Thursday's closing bell. Online Gambling Portal DraftKings (DKNG 14.62%) posted a 59% price drop over the same period, and video streaming veteran Netflix (NFLX 8.20%) decreased by 71%.
In Friday morning trading, the same stocks rose as much as 8.6%, 11.1% and 5.4%, respectively.
And then
To be clear, none of the companies on my list had any major news to report on Friday. It's true that Netflix announced a major ad partnership on Thursday, DraftKings just scheduled its second-quarter earnings report for the first week of August, and Beyond Meat turned a popular limited-edition bundle into a permanent product line with nationwide distribution. But DraftKings' procedural update wasn't exactly news, and market makers didn't raise an eyebrow at any of these events on Thursday.
As such, it appears that Friday's big price gains were driven by macroeconomic news. At least three points were important in that regard.
- US retail sales rose 1% in June, data from the Department of Commerce shows. Sales fell 0.1% in May and has been on a declining trend for the past four months. The rebound is great news for consumer-focused companies like Netflix, DraftKings and Beyond Meat, in that it suggests US consumers are loosening their wallets again after tightening them during this spring's inflation crisis.
- According to the International Money Fund (IMF), central banks' inflation-curbing actions should slow the rise in global inflation next year. So is the US market, where the Fed has increased the effective federal funds rate from 0.1% to 1.2% over the past six months, and the top of the federal funds rate target ranges from 0.25% to 1.2%. 1.75%. If the IMF is right, many economies teetering on the brink of recession could avoid that outcome, including the US economy.
- Finally, the largest banks started this earnings season with mostly positive results. Investors see this as a bullish sign for the stock market as a whole, indicating that the total withdrawal of traders from riskier growth stocks may soon come to an end.
What now
The market makers driving Friday's rally are basing their price analysis on economic trends and loosely related consumer behavior reports. Each of these companies will go into the coming weeks with its own earnings report, giving investors solid data to lean on. First, Netflix will release its second quarter results next Tuesday. Both Beyond Meat and DraftKings will follow in the first week of August. Most of their peers and competitors will also report their earnings in the same period. In short, we have several weeks of market-moving data ahead of us.
I bring up these scheduled earnings reports to remind you that the one-day price swing does not imply a long-term trend, and investors should not expect a sustained recovery from long-suffered stocks until the underlying company begins to deliver better business results. .
That said, we're looking at three capable companies here. Netflix remains my best investment idea in this market. Beyond Meat and DraftKings also have serious long-term growth prospects, and their stocks are currently trading at relatively cheap valuations. All three are worth a closer look as you search the Wall Street bargain bin for potential high-octane growth stocks.
Anders Bylund has positions in Netflix. The Motley Fool holds positions in and recommends Beyond Meat, Inc. and Netflix on. The Motley Fool has a disclosure policy.
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