Stocks lost momentum and turned downward during afternoon trading on Friday, as investors pulled back some after a powerful rally that led by big tech names. The February jobs report also showed an uptick in the unemployment rate, bolstering investor confidence that the Federal Reserve will cut rates following its June meeting.
The S&P 500 (^GSPC) trended near the flatline after logging another record close on Thursday, while the Dow Jones Industrial Average (^DJI) increased by close to 0.3%. The tech-heavy Nasdaq Composite (^IXIC) lost 0.3% after a sharp gain the previous day.
Friday’s non-farm payrolls report showed the US economy added 275,000 jobs in February, once again zooming past Wall Street expectations. However, the unemployment rate ticked up to 3.9%, its first increase in four months. Futures on the three major averages were trading in red figures ahead of the jobs data.
The market received a boost this week as Chair Jerome Powell told lawmakers that the Federal Reserve is “not far” from being confident inflation is in the right place for the central bank to start bringing down borrowing costs.
Showing how the wind is blowing elsewhere, policymakers from the European Central Bank lined up to support a rate cut before their summer break as inflation falls faster than expected. Meanwhile, Bank of Japan officials are said to be warming to the idea of finally lifting rates out of the negative zone.
On the corporate front, Costco (COST) shares fell 7% after its quarterly sales miss overshadowed an earnings beat. Broadcom’s (AVGO) revenue beat and forecast for $10 billion in sales of AI-linked chips failed to impress investors, sending the stock over 6% lower.
In commodities, gold futures (GC=F) continued to rally, as spot gold eyed its biggest weekly jump in five months amid optimism for a mid-year Fed rate cut.
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Apple pops from ‘oversold,’ but history suggests the selling may not be over
Mean-reversion is the trade today, though some will call it “profit-taking.” Regardless, some of year’s biggest winners like Nvidia (NVDA) and Marvell (MRVL) are down decent amounts, as beaten-down stocks like Apple (AAPL) and Etsy (ETSY) are seeing a nice pop.
Apple stock has been particularly weak lately, suffering the biggest drop in Relative Strength Index (RSI) since December 2018. Thursday’s close at 21.9 is solidly below the 30 level, which is commonly understood to indicate “oversold.”
When a stock becomes deeply oversold like this, it can potentially lead to an interim bottom. (It can work the other way too at highs when a stock is overbought.) But this is not always the case.
What’s Next for Apple Stock After a Quick Crash to Oversold? The above study reveals how Apple stock fared following a close in RSI above 25 after closing below it the prior day.
This “oversold pop” setup in Apple has caught a few price bottoms precisely — like June 28, 2013 and February 6, 2018 — leading to both short-and long-term gains.
But, more often than not in the dozen instances this signal has fired since the year 2000, Apple stock bleeds lower in the subsequent days and weeks. The average and median returns are negative in time periods up to one month following the signal.
Notably, the results get much better as more time passes, with average gains of over 25% one year later and 75% positive results.
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Costco being Costco
Costco (COST) being Costco has historically worked very well for investors.
The company sells giant $1.50 hot dogs at its foodcourt (they taste great, as you can see below in my 2022 photo with retired CEO Craig Jelinek). In the most recent quarter, an 18% online sales increase was fueled by gold bar demand. I surprisingly found (and bought) two tomahawk steaks from my local Costco a few weeks ago for $40 (about five pounds of meat).
Costco just does things differently, and it’s built into its DNA. The stock has risen in the last five years because members are happy shopping there: +245%.
So I wasn’t surprised to hear Costco’s longtime CFO Richard Galanti (who is retiring soon) reveal it’s getting into the sushi business on last night’s earnings call:
“We recently opened our first fully operated sushi offering in Issaquah, Washington, across the street from our headquarters, with two more planned to open in the very near future. This operation is what we have successfully done for years — for many years — and throughout our Asia Costcos and several countries over there. The sushi program has proven to be a category where we can be successful in both quality and price, and we’re looking forward to seeing more of that in the future.”
Sign me up for a California roll, Rich.
The Costco hot dog is on point. At right, now retired Costco CEO Craig Jelinek. (Yahoo Finance)
