U.S. stocks, by any broad market measure, trade at or near all-time highs. But in many ways, it doesn’t necessarily feel like it.
To be sure, there are pockets of strength. Semiconductor stocks keep moving higher, and a blowout report from Nvidia (NASDAQ:NVDA) should drive further optimism toward that sector. The world’s two most valuable stocks, Microsoft (NASDAQ:MSFT) and Apple (NASDAQ:AAPL), continue to rally.
But this doesn’t feel like a market in which rising tides are lifting all of the proverbial boats. Investors clearly are uncomfortable with the valuations assigned growth stocks. 2019’s initial public offerings have mostly struggled. Usually, when broad market indices have reached all-time highs, skeptics are calling the gains a bubble, or something close. The trading within the market at the moment makes such an argument difficult to make.
Friday’s big stock charts highlight names who have been left out of the recent broad market rally. Two of the stocks are growth plays whose recent trading has been impacted by newly apparent concerns about valuation. Another shows the lack of investor appetite for ‘cheap’ stocks in sectors with significant external pressure.
All three are the kinds of names that usually run wild when the market has lost discipline. And so, in their own way, these three big stock charts might suggest that U.S. equities actually have more upside ahead.
A recurring theme in this space has been the idea that a market at all-time highs no longer seems to ignore valuation. Snap (NYSE:SNAP) is an epitome of that theme, and its chart suggests that investors need to make a decision:
- In the context of the broad market, the weakness in SNAP stock over the past two months makes some sense. “Growth at any price” has been replaced by a demand for real, consistent earnings. Whether it’s Uber (NYSE:UBER) and Lyft (NASDAQ:LYFT), cannabis stocks, or social media plays, investors are demanding profitability. In that new market, as I wrote this week, SNAP stock suddenly seems out of place.
- Technically, there’s still a case for more downside in SNAP stock. A clear downtrend has emerged since SNAP stock failed for a second time to break resistance at $18. The 20-day moving average still can act as resistance, and SNAP is hugging the 50-day moving average in a bid to find near-term direction.
- And so SNAP seems like a name that could signal broader market moves. SNAP has rallied sharply from December lows, but still remains expensive relative to revenue. A narrowing wedge formation suggests Snap stock will move sharply once it breaks the current range. The question is in which direction it will go. At the moment, the risk seems to the downside — but if SNAP can bounce back and climb higher, other growth stocks may well follow.
It would seem to follow that if broad market indices are at all-time highs, and growth stocks are struggling, then value plays would be gaining. But as pharmaceutical giant Pfizer (NYSE:PFE) shows, that’s not necessarily the case. Even among so-called cheap stocks, the sector matters, and that might be not good news looking at the second of our big stock charts:
- PFE stock seemed set to break out after third-quarter results on Oct. 29. A cheap valuation and raised full-year guidance briefly led the stock higher. But a quick sell-off suggests there simply aren’t enough buyers out there to drive near-term strength.
- The pullback in PFE stock implies that investors need a real catalyst to jump into the pharmaceutical and biotechnology sectors. Bristol-Myers Squibb (NYSE:BMY) has rallied as investors come around to its acquisition of Celgene (NASDAQ:CELG). Quieter names like PFE and Gilead Sciences (NASDAQ:GILD) have struggled to drive consistent gains.
- In that context, it’s hard to be too optimistic about PFE stock in the near term. The recent pullback has fallen through 20-, 50-, and 200-day moving averages. Support may hold again at $35, but it might take a change in investor sentiment for PFE stock to again rally before Q4 results arrive next year.
If growth stocks do return to favor, Splunk (NASDAQ:SPLK) might be one of the biggest winners. As the last of Friday’s big stock charts shows, SPLK has struggled for most of 2019. But there’s a case for the weakness to reverse:
- At the moment, SPLK stock looks reasonably weak from a trading standpoint. A downgrade to a “Neutral” rating from little-known Cleveland Research helped send shares down 6.2% on Thursday. That’s not the kind of response seen from a stock backed by confident investors.
- Of course, that trading on Thursday highlights the potential opportunity here. SPLK stock trades at about nine times revenue and 50x next year’s consensus earnings per share estimate. Those aren’t multiples that suggest that the stock is cheap. But they are more than reasonable in the context of growth stock valuations at the moment. And with earnings on tap next week, those multiples suggest that SPLK stock can rally off a big report.
- That context makes Splunk earnings next week important to the market as a whole. Gains in SPLK stock after earnings might suggest that investors still are willing to pay up for growth. But anything less, and SPLK stock has the potential to plunge through support at $110. In that scenario, SPLK can keep falling — and other growth stocks might well do the same.
As of this writing, Vince Martin has no positions in any securities mentioned.