Weekly Market Review: Pricing in Higher Interest Rates

The broader U.S. stock market averages fell across the board on Friday, ending a volatile week with fractional losses. Real Estate and Consumer Discretionary names led the way lower last week, while the Energy sector rallied. Elsewhere, the yield on the benchmark 10-year U.S. Treasury note rose to 3.14%.

Stocks pressed higher during the first three days of the week. However, they gave back all gains, as investors digested a 50-basis point interest rate hike from the Federal Reserve, on Wednesday.

In other economic news, the Institute for Supply Management said that U.S. manufacturing activity declined in April, while the services economy expanded.

The April jobs data were mixed. The U.S. economy added 428,000 non-farm payrolls last month, while the headline unemployment rate remained at 3.6%.

The Week Ahead

Walt Disney (DIS) headlines a relatively quiet earnings calendar this week. According to Refinitiv, more than 86% of the companies in the S&P 500 have posted quarterly results. Nearly four out of every five have exceeded earnings expectations.

Aggregate S&P 500 profit is expected to increase 10.1% in the first quarter. Backing out the Energy sector, which benefited from higher commodity prices, earnings are expected to have grown by just 4.4% from the previous year.

On the economic front, all eyes will be on inflation, which could induce the Fed to continue raising rates. U.S. core consumer prices (CPI) are due out Wednesday, with estimates calling for 6% growth, excluding food and energy.

A day later, core producer prices (PPI) are expected to show an 8.9% increase. The preliminary May Univ. of Michigan consumer sentiment survey on Friday also has a key inflation component.

The Dow Jones Industrial Average is now riding a six-week losing streak. The S&P 500 and Nasdaq Composite have also declined five straight weeks

Given a slowing growth outlook and the prospect of higher interest rates, it could become hard to come by investment gains in 2022. As a result, deciding what and when to buy can be challenging for any investor. However, the fact remains that investments with upside potential and other positive signals are out there if you dig a little deeper.

One such Healthcare name is worth a closer look and is our Stock of the Week.

Stock of the Week: Centene (CNC)

The company provides health insurance to over 26 million customers in the U.S. The stock gained 4% last week. It is showing signs that it has the potential to continue this relative outperformance into the second half of 2022.

Centene appears to be firing on all cylinders, as was evident last month when it delivered better-than-expected quarterly results. The company earned $1.83 a share in the first quarter, as revenue grew 24% from the previous year to $2.7 billion. Upside in the period was driven by higher Medicaid figures.

At current levels, the stock is valued at just 15.1x expected earnings over the next four quarters. This represents a discount to the broader market, as well as the 31.6% annual profit growth that Centene is projected to deliver over the next three to five years.

In the meantime, the company carries an “Outperform” Smart Score of 9/10 on TipRanks. This data-driven stock score is based on 8 key market factors.

On top of the positive aspects mentioned already, the Smart Score indicates that shares have seen insider buying, in addition to improving sentiment from analysts, financial bloggers, and individual investors.

FYI: This is just 1 of the 20+ stocks selected for the Smart Investor portfolio, a weekly newsletter that blends big data, and market insights.