Stock Market Today: 2020 Recession Odds; Ulta Pummeled

It wasn’t a great session for the stock market today. But after rallying most of this week, it’s hard for bulls to complain too much heading into the long holiday weekend. The SPDR S&P 500 ETF (NYSEARCA:SPY), SPDR Dow Jones Industrial Average (NYSEARCA:DIA) and PowerShares QQQ ETF (NASDAQ:QQQ) each tacked on over 2.5% on the week.

Believe it or not, we’ll have just four more months to go in 2019 by the time the stock market reopens for trading on Tuesday, Sept. 3. The holiday-shortened trading week may result in lower-than-usual volume thanks to Labor Day.

Mapping Out the Stock Market

Investors shouldn’t be surprised with Friday’s weakness for most of the session. Not only are we going into a long weekend in the midst of a trade dispute between the world’s two largest economies, but the range continues to be in play.

We talked about this range extensively earlier this week, and on Friday before the open, I even warned about it on Twitter. At some point, the range will give way and stocks will either start probing lower levels or testing higher prices. But until that happens, the range must be respected.

For a refresher, here is the updated chart. Notice how the S&P 500 continues to bounce between support and resistance, and how the 50-day moving average is now acting as resistance? Something needs to give for there to be a change in the market’s direction.

The best advice is to keep it simple — and the chart above is pretty darn simple.

Is a Recession Coming in 2020?

Trade concerns have been hurting stocks, but almost more potent has been the overnight experts in yield curve observation. I’m not saying an inverted yield curve is no big deal, but when my investment-less cousin starts asking about it, I know the news is beyond saturated.

In January,  the Wall Street Journal asked 50 economists for their estimates on the 10-year U.S. Treasury bond yield for mid-year. By June, 10-year Treasurys were yielding 2.1%, with not one of those economists forecasting less than 2.5% — both for June or by year-end.

So suddenly we should start trusting their estimations now that the yield curve is becoming even harder to predict and the Federal Reserve is changing gears? I don’t know about that.

The recession odds in the next 12 months rose to 35% earlier this month, but an even more specific call comes from Stifel. They say the U.S. may see a recession in May 2020. Further, the analyst says the stock market could experience its big selloff in December.

Again, a recession in totally possible. But these are pretty specific calls and while it doesn’t hurt to know the odds and follow them closely, be careful putting too much weight in any one observation. Remember, economists went 0-for-50 predicting the 10-year yield in six months time. Who’s to say they’ll be right about the next six to 12 months.

Ulta Needs Some Makeup

Boy, it was a doozy for Ulta Beauty (NYSE:ULTA), one of the top movers in the stock market today.

The company missed on earnings and revenue, reported shrinking profitability and lowered its outlook. That’ll get you a few bruises and a near-30% hammering. Despite the fall though, shares are still not at new 52-week lows. Closing at $237.73, Ulta will need to crack $224.43 on the downside to do that.

Earnings of $2.72 per share missed estimates by 8 cents, while revenue of $1.67 billion missed estimates by $10 million, despite growing 12.1% year-over-year.

While comparable-store sales grew 6.2%, it was short of estimates looking for 6.7% growth. Gross margins results missed estimates, while management slashed its full-year earnings outlook to a midpoint of $11.96 per share. That’s down from the prior midpoint of $12.93 per share and below consensus expectations at $12.97 per share.

Movers in the Stock Market Today

Most of Friday’s movers were related to earnings.

Ambarella (NASDAQ:AMBA) tacked on almost 18% after beating earnings and revenue and providing solid guidance.

Campbell Soup (NYSE:CPB) also beat earnings and revenue estimates, rising nearly 4%. While shares enjoyed a solid breakout, they were rejected off stiff resistance.

Dell (NYSE:DELL) tacked on 10.2% after its strong top- and bottom-line results.

(By the way, AMBA, CPB and DELL were three of today’s Five Top Stock Trades).

Not all was good news though. Yext (NYSE:YEXT) stumbled 14% despite beating on earnings and revenue estimates after guidance disappointed investors.

Interestingly, Workday (NASDAQ:WDAY) fell 5.5%, despite beating on top- and bottom-line estimates, providing strong third-quarter guidance and raising its full-year outlook. Hmm.

Lastly, Chesapeake Energy (NYSE:CHK) gave up all of its prior session gains, falling about 6.5% on Friday. The stock initially rallied on speculation regarding Hurricane Dorian on Thursday.

Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell did not hold a position in any of the aforementioned securities.