Investing Club: The week in review, the week ahead — May 6, 2022

Published Fri, May 6 20224:40 PM EDTUpdated Tue, May 10 202210:42 AM EDT

It was an incredibly volatile week for stocks, with all major averages finishing lower. Stocks sold off sharply on Thursday, erasing all of Wednesday's big post-Federal Reserve meeting rally. Stocks extended the sell-off Friday. All told for the week, however, the Dow Jones Industrial Average and the S & P 500 only fell slightly. The Nasdaq once again led to the downside, with a 1.5% drop for the week. Week in Review The market started the month of May higher on Monday and Tuesday, putting April's terrible performance behind us, as investors marked time until the Federal Reserve 's two-day policy meeting ended on Wednesday afternoon. The Fed came through, as expected, with an interest rate hike of 50 basis points, the biggest increase in two decades. It was double the March increase, the first rate hike in more than three years. But It was Fed Chairman Jerome Powell's commentary at his post-meeting news conference that a 75-basis-point hike was not on the table for upcoming meeting that sparked Wednesday's strong relief rally. The market reversed course sharply Thursday and then some, as the bond market — fearful the Fed was not doing enough to tamp down inflation — sold off. Since bond prices and yields move inversely, the benchmark 10-year Treasury yield topped 3.1% Thursday and took a leg higher on Friday, leading to another sharp decline for stocks in volatile session to end the week. Buy during market declines These markets are exhausting and scary, but there is a positive twist — opportunities to buy high-quality stocks at cheaper prices. This holds true for all long-term investors, but even more so for those still in the workforce and with years of saving and investing ahead of them. First: Buying shares of great companies at lower prices allows you to purchase a larger percentage ownership position. However, what we are also getting in this down market is a great deal of help in our effort to own more of the companies we love. Remember, our strategy is focus on companies that generate real profits and have the ability to return excess cash to shareholders. Outside of dividends, this is primarily done through buybacks. With earnings season at about the halfway point, we got a number of positive buyback announcements, including a $90 billion authorization from Apple (AAPL), a $70 billion one from Google parent Alphabet (GOOGL), an $8 billion increase for Advanced Micro Devices (AMD) earlier in the first quarter, expectations from Procter & Gamble (PG) to repurchase $8 billion to $10 billion this year, and an increase from Chevron (CVX) to run buybacks at a $10 billion per year rate. The list goes on and on. The point is this: If you are long-term investor, this decline is not only providing you the ability to scoop up more shares, it is also allowing these amazing companies to suck more shares than usual out of the market. That leaves you with a greater ownership position than you would have otherwise. Remember, if Apple (AAPL) is going to buy back $90 billion, it's going to do that whether shares are $180 or $150. However, at $150, that $90 billion would translate into 600 million shares pulled out, that's 20% more shares than the 500 million they could have pulled out were they buying at $180. The next time a day like Thursday hits the market, take a moment to remember that everyone knows price but far fewer know value. When you own shares of great companies that generate profits and cash flows and use those cash flows to buy back shares, you are going to come out on the other end owning even more of that great company. That's whether you actually step in to buy shares or sit back and let the companies do the buying for you. Fast forward to a time after the storm, there will be less shares to go around. As we know, earnings per share is net income divided by the number of shares outstanding. In the end, earnings per share, which you have a claim to as a shareholder, go up even if net income is flat simply by means of there being less shares in the market due to the buybacks. This is also why we like to focus on the companies that have already reported. Because in the end, we do believe that stocks reflect fundamentals and if we can have confidence in the trajectory of earnings, then we can act unemotionally and look at declines based on multiple contraction as buying opportunities. Under the hood this week Energy was the standout winner, advancing nearly 9% on the week, followed by utilities and communication services. On the other hand, real estate led to the downside, followed by consumer discretionary and consumer staples. Meanwhile, the U.S. dollar index held above 103, hitting a new 5-week high on Friday. Gold pulled back slightly, though remains in the upper-$1,800s per ounce. WTI crude prices advanced to around $110 per barrel. The yield on the 10-year Treasury broke above the 3.1% level, with the sharp move higher on Thursday putting significant downward pressure on equities. Here's a quick look at our Club trades from this past week. We want to note that at the time of Friday's Microsoft buy alert, we forgot to mention that we updated the stock to a 1 rating , designated for those holdings we believe can be bought here and now. Within the portfolio this past week, we got earnings results from Devon Energy (DVN), Coterra Energy (CTRA) and Advanced Micro Devices (AMD). We put all three releases in the "Great" category in our mid-season earnings scorecard . So far, 23 of our 34 companies have released quarterly results. On the macroeconomic front: on Monday, we got the ISM Manufacturing PMI report for April, which came in at 55.4%, down from 57.1% in March and missing 57.6% expected. On Tuesday, we learned that Factory Orders advanced 2.2% in March, better than expectations for a 1.2% increase. On Wednesday, the ADP Employment Survey was released, indicating that private payrolls increased by 247,000 jobs in April, missing expectations for 390,000 additions, and well below the upwardly revised gain of 479,000 seen in March. We also got the April ISM Services PMI report on Wednesday, which came in at 57.1%, down from 58.3% in March and below the 58.5% consensus expectation. On Thursday, Initial Claims for the week ending April 30 came in at 200,000, missing expectations of 180,000. Finally, on Friday, the Nonfarm payroll report for the month of April showed an addition of 428,000, above expectations of 400,000. What's ahead Next week, Club stocks reporting earnings include Bausch Health (BHC) on Tuesday before the opening bell; Wynn Resorts on Tuesday after the closing bell; and Disney (DIS) on Wednesday after the bell. Here are some other earnings reports and economic numbers to watch in the week ahead: Monday, May 9 Before the bell: Tyson Foods (TSN), Duke Energy (DUK), HF Sinclair (DINO), BioNTech (BNTX), Viatris (VTRS), Elanco (ELAN), Palantir (PLTR), Energizer (ENR) After the bell: Suncor Energy (SU), Equitable Holdings (EQH), XPO Logistics (XPO), Intl Flavors (IFF), InterActiveCorp (IAC), Simon Properties (SPG), Valvoline (VVV), Vroom (VRM), AMC (AMC), RingCentral (RNG), Trex (TREX), Upstart (UPST), GoodRx (GDRX), Plug Power (PLUG) 10:00 a.m. ET: Wholesale Inventories Tuesday, May 10 Before the bell: Sysco (SYY), Li Auto (LI), Builders FirstSource (BLDR), Aramark (ARMK), Fox Corp (FOXA), Warner Music (WMG), Hyatt Hotels (H), Brinks (BCO), Peloton (PTON), AZEK (AZEK), Planet Fitness (PLNT) After the bell: Occidental Petro (OXY), Fidelity National (FNF), Rocket Companies (RKT), GlobalFoundries (GFS), Electronic Arts (EA), Coinbase (COIN), Callaway Golf (ELY), Rackspace (RXT), Unity (U), Roblox (RBLX), The Trade Desk (TTD), SoFi (SOFI), Axon (AXON), The RealReal (REAL), GrowGeneration (GRWG) Wednesday, May 11 Before the bell: Performance Food Group (PFGC), Perrigo (PRGO), Sylvamo (SLVM), Nomad Foods (NOMD), Wolverine (WWW), Wendy's (WEN), Krispy Kreme (DNUT), YETI (YETI), Fiverr (FVRR) After the bell: Coupang (CPNG), Steris (STE), Amdocs (DOX), AppLovin (APP), Sonos (SONO), ZipRecruiter (ZIP), Traeger (COOK), Bumble (BMBL), Dutch Bros (BROS), Rivian (RIVN), Beyond Meat (BYND) 8:30 a.m. ET: Consumer Price Index Thursday, May 12 Before the bell: US Foods (USFD), Tapestry (TPR), Kelly Services (KELYA), NICE (NICE), Himax Tech (HIMX), UTZ Brands (UTZ), Squarespace (SQSP), CyberArk (CYBR), Six Flags (SIX) After the bell: Motorola Solutions (MSI), Compass (COMP), Toast (TOST), VIZIO (VZIO), Taboola (TBLA), Affirm (AFRM), Wheels Up (UP), New Relic (NEWR), Payoneer (PAYO), Poshmark (POSH), Duolingo (DUOL) 8:30 a.m. ET: Initial Jobless Claims 8:30 a.m. ET: Producer Price Index Friday, May 13 Before the bell: PLx Pharma (PLXP) (See here for a full list of the stocks in Jim Cramer's Charitable Trust.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

US Federal Reserve Chairman Jerome Powell speaks during a news conference in Washington, DC, on May 4, 2022.

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