Are we entering a recession -- and are there individual stocks we should be buying now?
Here, I'll tackle both questions. First, let's look at three signals we got by Thursday for the U.S. economy:
Advance growth domestic product for the fourth quarter of 2022 came in at 2.9%, higher than the expected 2.6%
Unemployment claims fell to 186,000 last week. Over the past four weeks, the average has fallen to about 197,000.
Durable goods orders climbed by 5.6%, stronger than the expected increase of 2.4%.
This is not the behavior of an economy that is about to go into a recession. The huge layoffs that have dominated the headlines are significant: 12,000 employees released by Alphabet (GOOGL) , 18,000 from Amazon (AMZN) , 10,000 from Microsoft (MSFT) , and more. But the damage doesn't appear to be spreading beyond the tech sector.
One has to wonder what the Federal Open Market Committee, the body within the Federal Reserve that determines the Fed funds rate, makes of these statistics. Do the unemployment figures indicate a job market that is still too tight? Is a 50-basis point rate hike on the table at next week's Fed meeting, rather than the expected 25?
Meanwhile, the S&P 500 appears to be breaking a trendline that has held it in check for over-a-year (point A). The large cap index climbed 1.1% on Thursday to close at its highest level since early December. The next test is the December high of 4100 (point B, blue line). If that line can be broken, a bullish trend will become apparent on the chart.
Charts via TradeStation
Now, for the stocks part. Some key individual stocks appear to be gaining traction, and one might surprise you.
When we consider the market reaction to Microsoft's earnings report from earlier this week, it's as if investors are looking past any current economic difficulties. When we consider Tesla's (TSLA) recent price cuts, this now appears to be a ploy to gain market share, rather than a reaction to slowing sales.
Both stocks closed at a one-month high on Thursday.
But the best stock chart I've seen lately belongs to graphics processing unit manufacturer Nvidia (NVDA) . On the weekly chart, Nvidia has broken out of an inverted head-and-shoulders pattern (curved black lines). The bullish formation occurred over an eight-month period, and suggests that Nvidia could climb to the $250 area.
Last year, Nvidia fell 50.3%. However, that drop was preceded by annual gains of 122% in 2020 and 125% in 2021. Investors may want to initiate a position in Nvidia here and look to add to it after the company reports earnings on Feb. 22.
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