If this week ends the way it started, the U.S. stock market will head into the weekend at fresh all-time highs.
Despite light news flow, the major indices posted heavy gains on Monday before taking a breather on Tuesday. Call it the calm before the storm.
Signs of a soft economic landing and hopes for an aggressive Fed rate cut campaign have helped the S&P 500 finish higher in 12 of the last 13 weeks. Come Friday's closing bell, will it be 13 of 14?
It's a toss-up.
The market's direction could swing dramatically in the days ahead because of a series of major events:
- Mega cap tech companies — including Alphabet Inc. (NASDAQ: GOOGL), Microsoft Corporation (NASDAQ: MSFT), Apple Inc. (NASDAQ: AAPL), Amazon.com Inc. (NASDAQ: AMZN) and Meta Platforms Inc. (NASDAQ: META) — report earnings mid-week. Each a bellwether of consumer and B2B activity, their results and outlooks will probably have a major impact on the S&P's near-term path.
- On Wednesday, the Federal Open Market Committee (FOMC) meets. Although a rate cut isn't expected, talk of dovish monetary policy is. A surprise in one direction or another could produce a big shift in investor sentiment.
- A three-day stretch of jobs data ending with Friday's nonfarm payrolls release will offer clues about the health of the U.S. labor market — and the need (or lack of a need) for Fed rate cuts.
Time will tell whether the rampant bull still has fresh legs or is getting tired.
In the meantime, one side effect of the market's sustained uptrend has been a flurry of Wall Street upgrade activity. It makes sense. If the domestic economy strengthens as expected, corporate earnings should do the same. But which upgrades should investors pay the most attention to?
At the sector level, information technology is crushing it. Upgrades in this group, while potentially valuable, run the risk of performance chasing and paying high P/E multiples. Companies in sectors that have lagged the broader market, on the other hand, may be safer bets. On Tuesday, Morgan Stanley upgraded fellow financials Bank of America (NYSE: BAC), Citigroup Inc. (NYSE: C) and The Goldman Sachs Group (NYSE: GS) to Overweight.
Another group receiving bulk-sized upgrades is food stocks. From snack makers to restaurants to distributors, food-related businesses have been the subject of several recent analyst upgrades. According to their new bulls, these two stocks have some of the best total return potential.
What is the upside on Hershey stock?
On Monday, Bernstein upgraded The Hershey Company (NYSE: HSY) from Market Perform to Outperform. The analyst noted that the leading U.S. confectioner's sales volume and market share trends are improving.
Aside from the fact that Hershey is lapping last year's Mars candy recall setback, product innovation is a source of consumer demand and potential outperformance. Earlier this month, Hershey's rolled out Snoopy & Friends Kisses in time for Valentine's Day. The first-ever Reese's Caramel Big Cup and a chocolate frosted donut KIT KAT are other recent innovations. Bernstein also mentioned that increasing cocoa and sugar prices (that get passed along to shoppers) could drive stronger top line growth in 2024.
Bernstein's $235.00 target equates to approximately 20% share price appreciation over the next 12 months. The pot gets sweetened when you add in Hershey's 2.5% dividend yield. A 22.5% total return for a low-risk, defensive candy maker may be worth biting into.
Is Wall Street bullish on JACK?
Wall Street has mixed views on Jack in the Box Inc. (NASDAQ: JACK). Seven firms are bullish and ten are neutral. However, The quick-service burger chain gained a bull this week when Northcoast Research upgraded its stock from Neutral to Buy. Northcoast has a $95.00 price target on JACK that points to a 20% upside. Earlier this month, Loop Capital named the restaurant to its 2024 Best Ideas list with a far more ambitious $120 target.
The Northcoast upgrade comes after Jack in the Box held its annual Investor Day on January 24. Like Hershey, innovation will be a key part of the company's growth playbook. This month, it introduced the Smashed Jack Burger, which beat out consumer cyclical favorites such as McDonald's Co. (NYSE: MCD), Burger King and The Wendy's Company (NASDAQ: WEN) as the best burger in fast food in a recent consumer taste test. Jack in the Box will look to 'spring back' from a disappointing Q4 report when it announces fiscal 2024 first quarter financials on February 21.
