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Looking Back, Looking Forward – May 8, 2020

The stock market returned to focus on earnings during the week ending May 8. Nine of the S&P 500’s top 10 winners reported earnings during the week. The one that did not, too took its cue from a peer’s report. April retail sales due on Friday, May 15 will be in focus next week.

Sector returns for the week ending May 8, 2020

Leaders and laggards for the week ending May 8, 2020

For the week ending May 8, the S&P 500 (SPY) gained 3.4%.

All sectors gained during the week ending May 8.

Energy (XLE), information technology (XLK), and communication services (XLC) outperformed the S&P 500. Utilities (XLU) and consumer staples (XLP) lagged.

The stock market returned to focus on earnings during the week ending May 8.

Nine of the S&P 500’s top 10 winners reported earnings during the week.

Looking at this list, shares of IPG Photonics (IPGP), PayPal (PYPL), Phillips 66 (PSX), News Corp. (NWS, NWS/A), American International Group (AIG), and EOG Resources (EOG) rallied between 15% and 27% even though the companies reported lower EPS or sales from the year-ago period.

However, three standouts reported higher sales and EPS from the year-ago period even in this COVID-19 challenged milieu. They are:

* Cybersecurity company Fortinet (FTNT) +31%

Work-from-home increasing demand for Fortinet’s products that secure virtual private networks (VPNs)

Revenue +22%, EPS +33%, EPS surprise +20%

EPS guidance for next quarter: $0.64-$0.66 versus $0.59 estimate

* IT Services provider Jack Henry & Associates (JKHY) +15%

Higher fees and software usage revenue from strong demand for private cloud offerings and transaction processing

Revenue +13%, EPS +25%, EPS surprise +20%

EPS guidance for next quarter: $0.77-$0.79 versus $0.79 estimate

* Semiconductor capital equipment manufacturer KLA Corporation (KLAC) +14%

Record shipments in the Semiconductor Process Control segment with demand for products or services largely unaffected by COVID-19

Revenue +30%, EPS +37%, EPS surprise +5%

EPS guidance for next quarter: $1.81-$2.87 versus $2.36 estimate

Although KLA’s 14% gain did not place it among the top 10 winners last week, KLA’s strong earnings report spurred a rally in the shares of its larger peer Applied Materials (AMAT). Applied Materials rose 15% to make the top 10 winner list.

Looking ahead to the week of May 11

Investors will closely scrutinize reports of different states reopening their economies.

April retail sales data are in focus after they slumped by 8.7% in March. Economists forecast retail sales to decline by 11.9% in April. Retail sales data are due on May 15.

Applied Materials shares took their cue from KLA Corp.’s earnings report last week and rallied 15%. Applied Materials reports on May 14.

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