What happened
2022 has been brutal so far for the stock market, particularly so for growth stocks that had enjoyed soaring share prices over the prior couple of years. Macroeconomic worries such as surging inflation, rising interest rates, and geopolitical conflicts sapped the values of many former Wall Street darlings.
But on Friday, some of these slumping stock charts took positive turns as the economy showed some signs of stabilization and long-term strength.
For example, vegetarian food innovator Beyond Meat (BYND +6.29%) had taken a 54% haircut from the New Year to Thursday's closing bell. Online gambling portal DraftKings (DKNG 3.69%) posted a 59% price drop over the same period, and video-streaming veteran Netflix (NFLX 0.09%) was down by 71%.
In Friday morning trading, the same stocks rose by as much as 8.6%, 11.1%, and 5.4%, respectively.
NASDAQ: NFLX
Key Data Points
So what
To be clear, none of the companies on my list had any significant news to report Friday. True, Netflix announced an important advertising partnership Thursday, DraftKings just scheduled its second-quarter earnings report for the first week of August, and Beyond Meat turned a popular limited-issue bundle into a permanent product line with nationwide distribution. But DraftKings' procedural update wasn't really news, and market makers hardly raised an eyebrow at any of these events on Thursday.
NASDAQ: BYND
Key Data Points
As such, it looks like Friday's big price jumps were powered by macroeconomic news. There were at least three items of note on that front.
- U.S. retail sales rose 1% in June, according to data from the Commerce Department. Sales fell 0.1% in May and had been trending lower in each of the last four months. The uptick is great news for consumer-facing companies like Netflix, DraftKings, and Beyond Meat, in that it suggests that U.S. consumers are loosening their purse strings again after tightening them during the inflation crunch of this spring.
- The inflation-taming actions of central banks should stem the global surge in inflation rates next year, said the International Money Fund (IMF). That includes the U.S. market, where the Fed has increased the effective federal funds rate from 0.1% to 1.2% over the last six months, and the top of the federal funds rate target range from 0.25% to 1.75%. If the IMF is correct, many economies viewed as teetering on the brink of recession might avoid that outcome -- including the U.S. economy.
- Finally, the largest banks kicked off this earnings season with mostly positive results. Investors see this as a bullish sign for the stock market as a whole, indicating that traders' all-out retreat from riskier growth stocks may soon come to an end.
NASDAQ: DKNG
Key Data Points
Now what
The market makers driving Friday's rebound are basing their price analyses on economic trends and loosely related reports on consumer behavior. Each of these companies will chime in with its own earnings report over the next few weeks, giving investors solid data to lean on. First, Netflix will report 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 a few weeks of market-moving data coming up.
I bring these scheduled earnings reports up as a reminder that a single day's price swing doesn't imply a long-term trend, and investors should not expect a lasting recovery for any long-suffering stock until the underlying company starts to deliver improved business results.
That being said, we are 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 trading at relatively inexpensive valuations right now. All three are worthy of a deeper look if you're searching through Wall Street's bargain bin for potential high-octane growth stocks.
