The big news of the day was the June reading on consumer inflation, which showed that prices declined for the first time since 2022. Indeed, headline June CPI declined 0.1% month-over-month, or the first drop in 23 months, according to the U.S. Bureau of Labor Statistics.

Economists forecast inflation to increase by 0.1% vs May. On an annual basis, CPI rose 3.0% in June – down from 3.4% the prior month – to beat estimates for a 3.1% gain. 

Core CPI, which excludes food and energy costs, likewise surprised to the downside, rising just 0.1% in June vs the previous month. Forecasts called for a 0.2% increase.

"Shelter, which comprises the largest portion of CPI, decelerated meaningfully from 0.4% in May and was responsible for the downside beat," says José Torres, senior economist at Interactive Brokers.

Sticky inflation readings have been a stumbling block for the Federal Reserve as it seeks to achieve its long-term target of 2%. Although the June CPI report is dovish for rate policy, a quarter-point cut at the next Fed meeting is highly unlikely, experts say.

However, markets are now pricing in looser policy than the central bank signaled at its June meeting.

As of July 11, interest rate traders assigned an 86% probability to the FOMC enacting its first quarter-point cut to the federal funds rate in September, up from 70% a day ago, according to CME Group's FedWatch Tool. 

Markets were mixed on the dovish inflation data, however. "The reaction in equities is shocking, as investors clamor for small caps while ditching the popular tech trade," Torres says.

The tech-heavy Nasdaq Composite – fresh off yesterday's record high – plunged almost 2% to 18,283. The broader S&P 500, also coming off a record close, shed 0.9% to end at 5,584. The blue-chip Dow Jones Industrial Average added less than 0.1% to finish at 39,753.

The small-cap benchmark Russell 2000, however, rallied more than 3.7%. (See more on small-cap stocks below.)

Stocks making moves

Delta Air Lines (DAL, -3.9%) stock fell sharply after the air carrier satisfied analysts' expectations for its second quarter but provided a soft outlook for the third quarter.

In the three months ended June 30, Delta's operating revenue increased 6.9% year-over-year to $16.7 billion while its revenue per available seat mile decreased 1.2% to 22.3 cents. Its earnings per share (EPS) decreased 11.9% to $2.36 from the year-ago period.

The results satisfied Wall Street's expectations, but sentiment turned negative toward Delta after the company provided the outlook for its third quarter. Delta now anticipates total revenue growth in the range of 2% to 4% and earnings per share in the range of $1.70 to $2.00, which came up short of analysts' estimate of $2.05 per share.

PepsiCo (PEP, +0.2%) reported mixed results for its second quarter and revised its full-year revenue outlook. The snack food and beverage giant's revenue increased 0.8% year-over-year to $22.5 billion as volumes declined 4% and 3%, respectively, in its Frito-Lay and PepsiCo Beverages segments in North America. Its earnings per share (EPS) increased 9.1% to $2.28 from the year-ago period.

The results were mixed compared with analysts' expectations. Wall Street was anticipating revenue of $22.6 billion and earnings of $2.16 per share.

As a result of its soft performance in the first half, PepsiCo revised its full-year revenue guidance. It now expects organic revenue growth of 4% versus its previous guidance of growth of at least 4%. It reiterated its expectation for core EPS of at least $8.15, an increase of 7% from the prior year.

Costco (COST, -4.3%) is hiking membership fees for the first time since 2017. The warehouse club is raising its annual membership fees by $5 for non-executives and by $10 for executives in the United States and Canada.

The change is effective September 1 and will impact around 52 million memberships, Costco said in a statement. Costco has traditionally raised its membership prices by $5 to $10 every five-and-a-half years, so the latest increase should not come as a shock to members since the last increase was in June 2017.

Additionally, management has been clear about its plans to raise membership fees. On its conference calls in December 2023 and March of this year, Costco's chief financial officer said the fee increase was a matter of "when, not if."

Small caps rally

While select Magnificent 7 stocks such as Nvidia (NVDA), Apple (AAPL) and Microsoft (MSFT) have driven the majority of the market's gains in the bull market, small caps – which tend to be more sensitive to the economic cycle and interest rates – have been a dud.

Indeed, the small-cap benchmark Russell 2000 – struggling to stay positive for months – was slightly negative as we closed out the first half.

"We think the fact that higher rates are putting more pressure on small companies' profitability is driving the performance gap," writes Liz Ann Sonders, chief investment strategist at Charles Schwab.

That's why Thursday's action was potentially interesting. The Russell 2000 rallied sharply while the Mag-7-heavy Nasdaq-100 tumbled 2.1%. 

If interest rates come down farther and faster than previously thought, that could make the risk-reward scenario for the best small-cap stocks to buy much more compelling.

Related content

• Rising Prices: Which Goods and Services Are Driving Inflation?
• If You'd Put $1,000 Into Nvidia Stock 20 Years Ago, Here's What You'd Have Today
• Best Dividend Stocks to Buy for Dependable Dividend Growth

In the three months ended June 30, Delta’s operating revenue increased 6.9% year-over-year to $16.7 billion while its revenue per available seat mile decreased 1.2% to 22.3 cents. Its earnings per share (EPS) decreased 11.9% to $2.36 from the year-ago period.

“Thanks to the incredible work of our 100,000 people, Delta is delivering industry-leading operational performance and best-in-class service for our customers,” Delta CEO Ed Bastian said in a statement. “We delivered record June quarter revenue and pre-tax income of $2 billion with a 15% operating margin.”

The results satisfied analysts’ expectations. According to CNBC, Wall Street was anticipating revenue of $15.45 billion and earnings of $2.36 per share.

However, sentiment turned negative toward Delta after the company provided the outlook for its third quarter, which fell short of analysts’ expectations. Delta anticipates total revenue growth in the range of 2% to 4% and earnings per share in the range of $1.70 to $2.00, which came up short of analysts’ expectations of $2.05 per share.

"For the September quarter, we expect a double-digit operating margin and a pre-tax profit of approximately $1.5 billion,” Bastian said. “With strong first half results and visibility into the second half, we remain confident in our full-year guidance."

For the full year, Delta reiterated its guidance of earnings per share in the range of $6 to $7 and free cash flow of $3 billion to $4 billion.

Is Delta stock a buy, sell or hold?

Wall Street is bullish on the airline stock. According to S&P Global Market Intelligence, the average analyst target price for DAL stock is $60.58, representing implied upside of more than 36% to current levels. Additionally, the consensus recommendation is a Strong Buy.

"Delta is a well-run airline with industry leading operations, consistent pre-tax earnings pre-pandemic, and a focus on staying capacity disciplined,” BofA Securities analyst Andrew Didora said in a July 8 note. 

“DAL's free cash flow potential the next few years (targets >$2B in 2023 and >$4B in 2024) is the most differentiating factor between DAL and other airlines (LUV and UAL). DAL expects to return to more normalized capex of $5-5.5B per year. This spend is similar to 2018-2019 while other airlines are investing at least twice the levels as pre-pandemic."

BofA Securities rates DAL stock a Buy.

Related Content

• Earnings Calendar and Analysis for This Week (July 8-12)
• Southwest Airlines Cuts Q2 Revenue Outlook Amid Higher Costs
• Analysts' Top S&P 500 Stocks to Buy Now

In the 12 weeks ended June 15, PepsiCo’s revenue increased 0.8% year-over-year to $22.5 billion as volumes declined 4% and 3%, respectively, in its Frito-Lay and PepsiCo Beverages segments in North America. Its earnings per share (EPS) increased 9.1% to $2.28 from the year-ago period.

“During the second quarter, our business delivered net revenue growth, strong gross and operating margin expansion and double-digit EPS growth, remaining agile despite facing difficult net revenue growth comparisons versus the prior year, subdued category performance within North America convenient foods and the impacts associated with certain product recalls at Quaker Foods North America,” PepsiCo CEO Ramon Laguarta said in a statement.

The results were mixed compared with analysts’ expectations. According to CNBC, Wall Street was anticipating revenue of $22.6 billion and earnings of $2.16 per share.

As a result of its soft performance in the first half, PepsiCo revised its full-year revenue guidance. It now expects organic revenue growth of 4% versus its previous guidance of growth of at least 4%. It reiterated its expectation for core EPS of at least $8.15, an increase of 7% from the prior year.

“For the balance of the year, we will further elevate and accelerate our productivity initiatives and make disciplined commercial investments in the marketplace to stimulate growth,” Laguarta said. 

Is Pepsi stock a buy, sell or hold?

Wall Street is bullish on the consumer staples stock. According to S&P Global Market Intelligence, the average analyst target price for PEP stock is $183.51, representing implied upside of about 14% to current levels. Additionally, the consensus recommendation is a Buy.

Financial service firm CFRA is one of the more bullish outfits on PEP stock with a Buy rating and $200 price target.

“Notably, volumes were higher across both product types across the Europe, Africa, Middle East, and South Asia markets, helping offset weakness in North America, where Beverage volumes were -3% and Frito-Lay was -4%,” CFRA vice president and senior equity analyst Garrett Nelson said in a note following the earnings release. 

“Gross margin expanded 120 bps to 55.9% (90 bps ahead of consensus). Despite a second consecutive beat, PEP merely maintained full-year EPS guidance of at least $8.15, which compares to the $8.16 consensus. We continue to believe PEP is just being conservative, but think some investors might view it as a red flag.”

CFRA’s $200 price target represents implied upside of more than 24% to current levels.

Related Content

• Earnings Calendar and Analysis for This Week (July 8-12)
• Analysts' Top S&P 500 Stocks to Buy Now
• Best Stocks To Buy Now

Appearing before a House committee, Powell on Wednesday reiterated the Fed's data-dependent path toward interest-rate policy. Equity markets perked up, however, when the central banker suggested the Fed has become more concerned about a slowing economy and softer labor market. 

"Powell noted that disinflation has returned after price pressures gained in the latter part of 2023," writes José Torres, senior economist at Interactive Brokers. "He opined that the most likely path for the Fed is to ease, but he refrained from speculating on when the organization will make its initial move. He added that recent data show that the job market is softening, and much like before the pandemic, the economy is no longer overheated."

Powell's presumed dovishness was just what markets wanted to hear. After all, they're desperate for the Federal Open Market Committee (FOMC) to enact its first quarter-point cut to the short-term federal funds rate. Although the FOMC signaled just one cut this year at the Fed's June meeting, a slowing labor market and easing wage pressures have increased the odds of the central bank turning more dovish over the next couple of months.

Indeed, as of July 10, futures traders assigned a 70% chance the FOMC will start easing at its September meeting, up from 45% a month ago, according to CME Group's FedWatch Tool. 

Against that backdrop, the next CPI report, released ahead of Thursday's open, will be dissected closely for clues as to when the first rate cut might land.

"Tomorrow's Consumer Price Index (CPI) will likely offer the second report of the year when price pressures arrive in the Fed's 2% ballpark on an annualized, month-over-month (m/m) basis," writes Interactive Brokers' Torres. "Inflation reports from January to April weren't cooperative."

Annual headline inflation is forecast to increase by 3.1%, according to the Federal Reserve Bank of Cleveland, down from the 3.3% rate seen in the May CPI report. On a monthly basis, June inflation is forecast to rise 0.1%, or essentially unchanged from the prior month. June's core CPI, which excludes volatile food and energy prices, is expected to increase 3.5% annually and 0.3% on a monthly basis. 

S&P 500 powers past 5,600

By the closing bell, two of the three main benchmarks set record closing highs – and one of them even set a milestone – thanks to mega-cap tech stocks.

The broader S&P 500 added more than 1% to close at 5,663, topping the 5,600 level for the first time ever. The tech-heavy Nasdaq Composite gained 1.2% to finish at its own record of 18,647. The blue-chip Dow Jones Industrial Average rose 1.1% to end at 39,721.

Once again, Nvidia (NVDA, +2.7%) and Apple (AAPL, +1.9) led the market's charge. With their massive market caps, NVDA and AAPL – at 6.7% and 7.01% of the S&P 500, respectively – are two of the three most heavily weighted stocks in the benchmark index. Microsoft (MSFT, +1.5%) is No 1 in the S&P 500 with a 7.4% weight.

Nvidia stock alone added $87 billion in market value Wednesday, or more than the entire market cap of Starbucks (SBUX). Apple shareholders saw their wealth expand by $65 billion.

Nvidia has been the market's favorite pure-play bet on all things AI, but NFLX has been generating outsized returns for ages. Anyone who put $1,000 into Nvidia stock 20 years ago would be very pleased with their returns today.

And as for the iPhone maker? Apple's 20-year returns are incomparable to any other stock.

Related content

• How to Find the Best Small-Cap Stocks to Buy
• If You'd Put $1,000 Into Netflix Stock 20 Years Ago, Here's What You'd Have Today
• Analysts' Top S&P 500 Stocks to Buy Now

The Fed chief's words helped keep the bears at bay, allowing mega-cap tech stocks to continue to propel two of the three major benchmarks higher. 

All eyes were on the central bank chief as he delivered the first of two days of semiannual testimony before Congress. Speaking to the Senate on Tuesday, Powell reiterated the key conclusions from the Federal Open Market Committee's June meeting.

"Chair Powell's written semi-annual Monetary Policy Testimony is mostly a carbon copy of the June FOMC statement," writes Ian Shepherdson, chairman and chief economist at Pantheon Macroeconomics. "Mr. Powell remains reluctant to signal the onset of monetary easing well in advance, scarred by the burst of inflation in Q1, but reading between the lines we think his base case is a September easing."

The economist notes Powell gives "a hint of rising anxiety" about waiting too long to cut. "The Jackson Hole symposium, held between August 22 and 24, provides an ideal opportunity for him to give customary notice of an impending policy change," Shepherdson says. 

Market participants are eagerly awaiting the Fed's first quarter-point cut, which will bring interest rates down from a 23-year high. Although the FOMC signaled just one cut this year at the Fed's June meeting, a slowing jobs market and easing wage pressures have increased the odds of the central bank turning more dovish over the next couple of months.

As of July 9, futures traders assigned a 70% probability to the FOMC enacting its first cut to the federal funds rate in September, up from 63% a week ago, according to CME Group's FedWatch Tool. 

At the closing bell, stocks were little changed on light volume. The broader S&P 500 inched up 0.07% to 5,577, while the tech-heavy Nasdaq Composite gained 0.1% to 18,429. The blue-chip Dow Jones Industrial Average was off 0.1% at 39,292.

Econ news and earnings on tap

Fed Chief Powell wraps up his second day of testimony before Congress on Wednesday, this time appearing before the House. The central banker will face more questions about inflation, a subject which will come into greater focus on Thursday with the release of the next CPI report.

Annual headline inflation is forecast to increase by 3.1%, according to the Federal Reserve Bank of Cleveland, down from the 3.3% rate seen in the May CPI report. On a monthly basis, June inflation is forecast to rise 0.1%, or essentially unchanged from the prior month. June's core CPI, which excludes volatile food and energy prices, is expected to increase 3.5% annually and 0.3% on a monthly basis. 

On the earnings front, the tempo should pick up on Thursday when Delta Air Lines (DAL) reports ahead of the opening bell. Morgan Stanley analyst Ravi Shanker says that DAL is one of the "cleanest stories" in airlines right now, citing Delta's outsized exposure to corporate travel vs peers. The analyst rates DAL at Overweight (the equivalent of Buy), calling it a "top pick."

On Friday, JPMorgan Chase (JPM), the nation's biggest bank by assets, is slated to post results, as is Citigroup (C). Jefferies analyst Ken Usdin, who rates JPM at Buy notes that loan growth for many banks remains sluggish due to high interest rates, which could continue to weigh on net interest income (NII) in the near term.

Tesla stock notches 10th straight win

Not too long ago, Tesla (TSLA, +3.7%) was the little Magnificent 7 stock that couldn't. At one point in late April, shares were off more than 40% for the year-to-date. Concerns about price cuts and sluggish deliveries had the market undergoing a major re-rating of this stock.

Cut to today, and Tesla stock just notched its 10th straight win – a rally supported in part by better-than-expected deliveries in the second quarter. Not only is TSLA stock up more than 40% over the past 10 sessions – it's now up 6% for the year-to-date. 

If nothing else, the Mag 7 stock – at 3% of the Nasdaq-100 index – has finally started pulling its weight. 

Related content

• How to Find the Best Small-Cap Stocks to Buy
• If You'd Put $1,000 Into Netflix Stock 20 Years Ago, Here's What You'd Have Today
• Analysts' Top S&P 500 Stocks to Buy Now

Two of the three main benchmarks managed to finish the session at fresh highs, however. By the closing bell, the broader S&P 500 added 0.1% to 5,572, while the tech-heavy Nasdaq Composite rose 0.3% to 18,403. The blue-chip Dow Jones Industrial Average, however, slipped 0.08% to end at 39,344.

Traders and investors, coming back from a holiday weekend, may be forgiven if they had their minds on other things. After all, the economic calendar and earnings calendar are full. 

By the closing bell, stocks were mixed. The broader S&P 500 added 0.1% to 5,572, while the tech-heavy Nasdaq rose 0.3% to 18,403. The blue-chip Dow Jones Industrial Average, however, slipped 0.08% to end at 39,344.

Econ data, earnings on tap

Fed Chief Powell will deliver his semiannual testimony on Capitol Hill tomorrow, visiting the Senate on Tuesday and then appearing before the House on Wednesday. The Fed chair will face questions about the central bank's timeline for interest rate cuts, inflation and the rising unemployment rate seen in the June Jobs report.

Almost as if on cue, on Thursday all eyes will be on the next CPI report. Markets desperately want the Fed to enact its first quarter-point cut to the short-term federal funds rate sooner rather than later. A string of sticky inflation readings has complicated the Fed's calculus, however, and that's put the June CPI report very much in the spotlight. 

According to the Federal Reserve Bank of Cleveland, annual headline inflation is forecast to increase by 3.1%, down from the 3.3% rate seen in the May CPI report. On a monthly basis, June inflation is forecast to rise 0.1%, or essentially unchanged from the prior month. June's core CPI, which excludes volatile food and energy prices, is expected to increase 3.5% annually and 0.3% on a monthly basis. 

On the earnings front, the tempo should pick up on Thursday when Delta Air Lines (DAL) reports ahead of the opening bell. Morgan Stanley analyst Ravi Shanker says that DAL is one of the "cleanest stories" in airlines right now, citing Delta's outsized exposure to corporate travel vs peers. The analyst rates DAL at Overweight (the equivalent of Buy), calling it a "top pick."

On Friday, JPMorgan Chase (JPM), the nation's biggest bank by assets, is slated to post results, as is Citigroup (C). Jefferies analyst Ken Usdin, who rates JPM at Buy notes that loan growth for many banks remains sluggish due to high interest rates, which could continue to weigh on net interest income (NII) in the near term.

Corning stock soars on outlook

Corning (GLW) was the S&P 500's biggest gainer today, rising 12% to close at $43.05. The tech company raised its second-quarter guidance for core sales and core earnings per share. Corning cited "strong adoption of new optical connectivity products" for generative AI as the reason for the good news.

GLW stock has been a long-time market laggard, but excitement about all things AI has it beating the market by a wide margin in 2024.

For the year-to-date through July 5, GLW generated a total return of 28% vs 18% for the S&P 500, according to data from YCharts. Over the past 52 weeks, however, GLW lags the broader market by about 13 percentage points.

Related content

• How to Find the Best Small-Cap Stocks to Buy
• Best Dividend Stocks to Buy for Dependable Dividend Growth
• If You'd Put $1,000 Into Nvidia Stock 20 Years Ago, Here's What You'd Have Today

Lately, investors have been willing to pay ever-higher prices for their slice of corporate profits, pushing P/Es beyond their historical norms. Based on estimated earnings for the 12 months ahead, the P/E for the S&P 500 was recently 20.3, according to FactSet Research Systems, a financial data firm. That’s greater than both the five-year average of 19.2 and the 10-year average of 17.8. 

“In the last year, the rise in stock prices was essentially all due to multiple expansion,” says LizAnn Sonders, chief investment strategist at Charles Schwab. “The market is expensive. No doubt about it,” Sonders says.

If history is any guide, stock prices will fall — or corporate earnings will rise — enough to bring P/Es back into their traditional ranges. Further expansion of P/E multiples could be constrained in coming months, say strategists, as a delay in interest rate cuts from the Federal Reserve and economic uncertainties weigh on stocks. That makes earnings growth all the more important. 

Given the market’s crosscurrents, it’s time for long-term investors to make sure their portfolios are buttressed with companies that thrive even in difficult environments.

Growth at a reasonable price

The companies best positioned to deliver gains to long-term investors will be reasonably priced stocks that have proved they can deliver steady, compounding earnings growth and are on track to do so even if the economy softens. “We are now at a point, due to rich valuations, when you want to look for both growth and value, for high-quality companies with stability and the ability to grow earnings,” Sonders says. She notes that many analysts have dubbed this strategy “GARP,” or growth at a reasonable price.

Analysts at Goldman Sachs recently sorted stocks into baskets that included companies that the firm deems “stable growers,” as well as those considered “high quality.” “Earnings drive stocks ... and stocks with stable growth typically perform best alongside decelerating economic growth,” Goldman Sachs chief U.S. equity strategist David Kostin said in a recent note to clients. 

We used Goldman’s baskets as a starting point and spoke with other analysts and portfolio managers to find stocks with a good chance of delivering earnings and stock gains. The stocks below have records of steady profit growth, as well as healthy balance sheets or a niche that insulates them in uncertain times. Prices and other data are as of May 31, unless otherwise noted.

American Water Works (AWK, $131). The country’s largest publicly traded water utility has more than doubled its earnings per share since 2017 and is favored by analysts as a steady earner. Kristina Ruggeri, a water and utility analyst for stock research firm Argus, expects American Water Works to continue increasing its annual earnings per share by 7% to 9% for the foreseeable future, thanks to utility rate hikes, federal infrastructure spending and growing demand from artificial intelligence companies for water to cool their data centers.

At 24 times expected earnings, the stock is trading near the bottom of its historical range over the past five years, Ruggeri notes. In addition, the company recently raised its dividend by 8%. The stock’s yield is an attractive 2.3%. 

Water utilities have generally been viewed as long-term holdings because it can take years to recoup outlays for capital improvements and to apply for rate hikes from local regulators. Ruggeri has set a 12-month target price for the stock of $150 per share, suggesting a gain of as much as 20% from its recent close. As one of the largest companies selling a life necessity, American Water “is in a really good position,” she says.

AutoZone (AZO, $2,770). This auto parts retailer has reported consistently increasing earnings per share for the past decade: from $31.57 in 2014 to $132.36 in fiscal 2023 (which ends in August). Analysts covering the stock expect the company’s earnings to increase at an average annual rate of nearly 15% over the next three to five years, according to S&P Global Market Intelligence. Their average target price for the stock is $3,203, indicating room for a 16% gain over the next 12 to 18 months.

Robert Klaber, a portfolio manager of the Parnassus Mid Cap Growth Fund, says auto parts companies are generally a safe bet no matter what happens to the economy because in good times and bad, people need to repair their cars. The demand for parts will continue to grow because the average U.S. vehicle age this year hit a record high of 12.6 years.

Klaber is optimistic about AutoZone’s expansion plans, including new stores in the U.S., Mexico and Brazil. And he says the stock price has been buoyed because the company has bought back so much stock that its share count has fallen in half over the past 18 years. AutoZone trades at what he considers to be a reasonable P/E of 17. “AutoZone is a defensive earnings compounder with pricing power that is selling necessities,” he says (instead of selling discretionary goods that people can easily forgo).

CDW (CDW, $224). This technology middleman avoids many of the swings of the tech boom-and-bust cycle because it focuses on selling bundles of computers and software made by other companies to government agencies and businesses. In the 10 years ending in December 2022, its earnings rose steadily, from $1.83 a share to $9.88. But last year’s earnings were essentially flat, in part because a threat of a federal shutdown delayed orders; the company was still in catch-up mode in early 2024.

Still, seven out of the 11 Wall Street analysts following the company are bullish on the stock, and Samik Chatterjee, an analyst at J.P. Morgan, calls CDW “historically a favorite, given its resilience in a volatile backdrop.” He projects earnings per share to rise by 4% in 2024 and nearly 12% in 2025. Noting that the stock is trading at a reasonable P/E of 21, Chatterjee has set a target of $265 for the stock in 2024, implying a potential 18% gain from the stock’s recent close.

ResMed (RMD, $206). The world’s largest manufacturer of breathing devices for people with conditions such as sleep apnea has reported increasing earnings over the past six years, except for a blip in 2021 due in part to COVID-related computer chip shortages and shipping delays. Earnings per share rose from $3.53 in 2018 to $6.44 in 2023. Ten out of the 15 analysts who follow the company are bullish, according to S&P. Zacks Investment Research classifies the stock as an outperformer and expects earnings per share to rise by about 13% in 2024 and by that much again in 2025.

Shane Ponraj, who follows ResMed for the research firm Morningstar, considers the stock a good bet because its continuous positive airway pressure (CPAP) devices help reduce health emergencies for people who have trouble breathing while asleep, thus reducing medical costs in the long run. Ponraj estimates that up to 15% of the developed world’s population could benefit from CPAPs, but only 3% use them. That “indicates a long runway for growth,” he says. Adding to the company’s strength: Its main competitor, Phillips, had to recall millions of CPAPs in 2021 because of problems with insulation inside their devices.

Although ResMed was recently trading at nearly 25 times next year’s earnings, Ponraj and other analysts expect the earnings growth to push the stock price ahead. Ponraj estimates the company would be fairly valued at $264, implying a 28% potential gain.

Waste Management (WM, $211). There are only 26 stocks in Jensen Quality Growth fund, and Waste Management is one of them. Comanager Allen Bond thinks the nation’s largest waste hauler can profit in any kind of economy. No matter what happens, people need to get rid of their garbage. And the company’s investments in improvements such as automated sorting at recycling facilities are strengthening its revenues and profits, he says.

Since 2020, Waste Management has increased earnings per share by a cumulative total of 54%. Deutsche Bank analyst Faiza Alwy expects the firm to log double-digit annual earnings growth at least through 2025.

Waste Management stock has posted healthy annualized returns of nearly 16% over the past five years. It recently traded at 28 times expected earnings for the next 12 months. That makes the stock higher priced than the broad market, as measured by the S&P 500. But because of its track record of resilience during downturns and its outlook for growth, Waste

Management meets the Jensen fund’s criteria for growth at a reasonable (not necessarily a bargain) price. “We are not looking for deep values. We are looking for quality at a reasonable price,” Bond says. One quality he especially likes: The company’s return on equity of 35% is about double that of the broader market. Return on equity is a profitability yardstick that measures how well a company generates profits from shareholders’ investments — which is, after all, the name of the game.

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

Related content

• Best Dividend Stocks to Buy for Dependable Dividend Growth
• Best Stocks for Rising Interest Rates
• How to Find the Best Tech Stocks to Buy

The asset the most American retail investors hold onto is cash, according to a survey of 10,000 retail investors released recently by eToro. About 76% of American retail investors hold cash assets, well ahead of the 49% of respondents holding domestically listed stocks and nearly double the 40% of respondents holding domestic bonds.

More investors may be "leaning into cash assets for a solid risk-free return" because interest rates have been so high for so long, eToro U.S. investment analyst Bret Kenwell said in a statement. High interest rates present opportunities in safe investments like high-yield savings accounts, certificate of deposit (CD) accounts or Treasury bills, which have been offering yields above 5%. But, depending on a person's needs, investors holding onto more cash could be missing out.

Even the high rates you can currently earn in the various types of savings accounts or fixed income investments cannot compare to the more than 16% gain on the S&P 500 index year-to-date in 2024, not including dividends, which investors can gain access to through low-cost exchange-traded funds (ETFs). This has been an especially strong year so far, but even historically, the stock market has an average annual return of about 10%. 

Many people may have been scared off of investing in the stock market in recent years due to volatility during the pandemic era and fears of a recession. However, thus far, that fear has not been realized, and signs indicate there is still room for optimism. 

So while people have been playing it safe and getting decent returns in cash in recent times (hopefully, if they're using tools like CDs and high-yield savings accounts, rather than just parking it in a checking account), they could have been getting even bigger returns in the stock market. Plus, it doesn't take active day trading or smart stock picks to succeed: You could easily use ETFs to see big returns, and you don't need a lot of extra money to begin investing. 

How much of your investments should be in cash?

Keeping savings or investments in cash is wise for a few reasons, but it should be done thoughtfully. 

If you're trying to figure out how much cash you need, you should consider your more immediate needs as well as your emergency fund. Emergency funds should generally be kept in cash for ease of access; it can be held in a high-yield savings account, for example, where you can withdraw any amount at any time, so you can use it penalty-free when an emergency comes up. Experts generally recommend keeping three to six months' of basic living expenses in an emergency fund. 

Cash is also king if you have expected expenses coming up in the next 12 months. Say, for example, you're planning to take a big vacation in eight months. In that case, much like with an emergency fund, you want to have your money in an accessible place. In this example, you could invest in a three-month Treasury bill or CD, so it can make a good return before you need it for that trip. 

If, instead, you put that money into the stock market and needed to use it within a year, you would be subject to higher capital gains taxes. Because the stock market has more volatility than cash investments, you could also risk having to sell a position at a lower point if you are in need of cash to pay for something. 

Get started investing with ETFs

As mentioned, ETFs are an easy way to garner stock market returns. 

ETFs "hold a collection of stocks and bonds in a single fund," Kiplinger contributing writer Will Ashworth explains in a piece about how to invest in ETFs. “Unlike mutual funds, they are bought and sold on stock exchanges, can be traded anytime the exchange is open, and you can start your ETF investing even if all you have to invest is $50.”

ETFs also generally carry lower expense ratios than mutual funds. All of these reasons make ETFs a great option for beginner investors just getting started or those looking to move out of cash and into equities.

The most popular ETFs include S&P 500 ETFs, such as the ultra-popular SPDR S&P 500 ETF Trust (SPY) – the largest exchange-traded fund in the market. It tracks the Standard & Poor's 500 Index, which consists of 500 large, predominantly U.S-domiciled companies that trade on the major American exchanges. By owning this ETF, you effectively own the S&P 500's performance, so if it rises, your investment will also rise. 

SPY is currently trading around $550, but with plenty of brokerages selling commission-free fractional shares, you don't necessarily need that much to get started. Besides, there are plenty of ETFs on the market, including many at much lower costs. You can see Kiplinger's best ETFs to buy for some more options. 

If you're looking for the best returns, especially over a longer timeframe, historically, stocks should be in your portfolio. Keep in mind, though, that there are some times when you should avoid putting too many eggs in that basket, like if you will need money within a short timeframe for a large purpose or for retirement purposes and can't risk potential short-term volatility. 

Related Content

• Many Mutual Funds Are Converting To ETFs: What To Know
• Kip ETF 20: The Best Cheap ETFs You Can Buy
• How to Buy Stocks

The cannonball in the market's pool Friday was the June jobs report, which revealed a still strong but cooling labor market. U.S. nonfarm payrolls increased by 206,000 last month, the Bureau of Labor Statistics said Friday, or essentially in line with economists' forecast for the creation of 200,000 jobs. Additionally, the surprisingly strong May jobs report was revised lower to 218,000 new hires from the 272,000 previously reported.

Importantly, the unemployment rate, which is derived from a separate survey, ticked up to 4.1% in June from 4% the prior month. Economists forecast the unemployment rate – which is still at half-century lows – to remain unchanged.

"Perhaps most concerning is the steady rise in unemployment, which rose for the third consecutive month to 4.1%, the loftiest level since November 2021," writes José Torres, senior economist at Interactive Brokers. "If the trend continues, it will certainly provide the nation with interest rate relief. Market players are responding by raising the odds of the Fed dishing out a September cut."

The June payrolls report is just the latest in a series of data pointing to a weakening jobs market, which in turn supports the case for lower interest rates. Recall that market participants are eagerly awaiting the Fed's first quarter-point cut, which will bring interest rates down from a 23-year high.

Although the Federal Open Market Committee (FOMC) signaled just one cut this year at the Fed's June meeting, a slowing labor market and easing wage pressures have increased the odds of the central bank turning more dovish over the next couple of months.

As of July 5, futures traders assigned a 73% probability to the FOMC enacting its first cut in September, up from 58% a week ago, according to CME Group's FedWatch Tool. Meanwhile, the probability of the first cut coming in December dropped to 22% from 31% a week ago.

Q2 earnings season on tap

Second-quarter earnings season unofficially kicks off next week with quarterly reports scheduled from a major air carrier and two the nation's biggest banks.

The upcoming earnings calendar is relatively quiet to start the week, but traders will surely be busy starting on Thursday when Delta Air Lines (DAL) reports ahead of the opening bell. Morgan Stanley analyst Ravi Shanker says that DAL is one of the "cleanest stories" in airlines right now, citing Delta's outsized exposure to corporate travel vs peers. The analyst rates DAL at Overweight (the equivalent of Buy), calling it a "top pick."

On Friday, JPMorgan Chase (JPM), the nation's biggest bank by assets, is slated to post results, as is Citigroup (C). Jefferies analyst Ken Usdin, who rates JPM at Buy notes that loan growth for many banks remains sluggish due to high interest rates, which could continue to weigh on net interest income (NII) in the near term.

The analyst believes NII growth potential is close to turning, although this largely depends on the timing and magnitude of the Fed's rate-cutting cycle. 

Downgrade dings Nvidia stock

Friday was a record-setting day for markets, led by mega-cap tech and communications services stocks such as the Magnificent 7. And yet the market's runaway mega-cap tech winner of the bull market missed out on all the fun.

While Apple (AAPL), Microsoft (MSFT), Alphabet (GOOGL), Amazon.com (AMZN) and Meta Platforms (META) all rallied strongly to end the week, Nvidia (NVDA) slumped 1.9% on an analyst downgrade.

New Street Research cut its rating on Nvidia to Neutral (Hold) from Buy, citing a "health check" on artificial-intelligence stocks. Analyst Pierre Ferragu said in a research note that further upside in NVDA stock "will only materialize in a bull case, in which the outlook beyond 2025 increases materially, and we do not have the conviction on this scenario playing out yet."

As for the main indexes, the tech-heavy Nasdaq Composite added 0.9% to 18,352 while the S&P 500 gained 0.5% to 5,567. Both indexes closed at record levels. The blue-chip Dow Jones Industrial Average rose 0.2% to end at 39,375.

Related content

• How to Find the Best Small-Cap Stocks to Buy
• Best Dividend Stocks to Buy for Dependable Dividend Growth
• If You'd Put $1,000 Into Nvidia Stock 20 Years Ago, Here's What You'd Have Today

U.S. nonfarm payrolls increased by 206,000 last month, the Bureau of Labor Statistics said Friday, or essentially in line with economists' forecast for the creation of 200,000 jobs. Additionally, the blowout May jobs report was revised lower to 218,000 new hires from the 272,000 previously reported.

The unemployment rate, which is derived from a separate survey, ticked up to 4.1% in June from 4% the prior month. Economists forecast the unemployment rate, which is at half-century lows, to remain unchanged.

In another dovish development for rate policy, wage pressures remained static month-over-month. Average hourly earnings increased 0.3% – or the same rate reported in May – to match economists' forecast.

"Under the surface of the stronger-than-expected headline nonfarm payroll gain, this was a soft employment report that bolsters the case for a September rate cut from the Fed," writes Scott Anderson, chief U.S. economist at BMO Capital Markets. "We now have definitive evidence of U.S. labor market cooling with a somewhat alarming rise in the unemployment rate in recent months that should give policymakers 'more confidence' that consumer inflation will soon return to the 2.0% target on a sustainable basis."

Market participants are eagerly awaiting the Fed's first quarter-point cut, which will bring interest rates down from a 23-year high. Although the Federal Open Market Committee (FOMC) signaled just one cut this year at the Fed's June meeting, a slowing labor market and easing wage pressures have increased the odds of the central bank turning more dovish over the next couple of months.

As of July 5, futures traders assigned a 71% probability to the FOMC enacting its first cut in September, up from 58% a week ago, according to CME Group's FedWatch Tool. Meanwhile, the probability of the first cut coming in December dropped to 23% from 31% a week ago. 

With the June jobs report now a matter of record, we turned to economists, strategists and other experts for their thoughts on what the data means for markets, macroeconomics and monetary policy going forward. Please see a selection of their commentary, sometimes edited for brevity or clarity, below.

June jobs report: The experts weigh in

"Today's jobs report is welcome news for the Fed, as it shows continued signs of softening in the labor market and supports other signs of a slowing economy.  The rise in the unemployment rate to 4.1%, the highest since November 2021, and the downward revisions of 111,000 jobs for April point to a slowing jobs market, and the data reinforces the probability of a first rate cut in September." – Ivan Gruhl, co-chief investment officer at Avantax

"Combined with a number of weaker economic data points recently, today's jobs report should give the Fed reason to increase its focus on the employment side of its dual mandate. While it is especially difficult to predict what the Fed will do in advance of the election, this morning's data could increase the likelihood of a rate cut as soon as the September meeting. A labor market that is loosening but still solid, combined with impending rate cuts, could provide a backdrop for continued strength in the equity market." – David Royal, chief financial and investment officer at Thrivent

"On net, the job market looks considerably cooler in the June report than in May, and the unemployment rate at 4.1% is above where the median Fed policymaker projected it at year-end when they compiled economic projections last month. The June jobs report was pretty good. The unemployment rate edged higher, but isn't high by historical comparison. And wage growth continues to outpace inflation. The labor market's cooling trend is quite clear. If inflation holds in its recent range, the Fed is likely to make an initial rate cut at the following decision, in September." – Bill Adams, chief economist at Comerica Bank

"Despite the unemployment rate ticking up to 4.1%, it is only about half-a-percent higher than its historic low last year, continuing to show the resilience of the U.S. economy. Given this month marks the one-year anniversary of the last rate hike, we would expect tighter conditions to be having a more drastic effect on the consumer and labor market. Given this strength, the Fed is likely to continue its patient approach to rate cutting." – Ben Vaske, senior investment strategist at Orion Portfolio Solutions

"The jobs numbers were modestly below expectations when factoring in the revisions but are still indicative of a healthy labor market. This report absolutely keeps the probability of a September rate cut on the table. This still seems like the most likely outcome. This keeps the upcoming inflation data in the driver's seat for determining the timing of the first cut. This NFP data will neither cause the Fed to take a September cut off the table or force them to cut rates in September even if the inflation data does not continue to show moderation that we have seen recently. Signs of continued moderation of economic growth and the labor market will likely be a positive for equities and high-yield bonds in, at least, the short run. The market's pricing of two cuts in 2024 seems very reasonable." – Greg Wilensky, head of U.S. fixed income and portfolio manager at Janus Henderson Investors

"The latest jobs report is sure to cause fireworks between hawks and doves at the Fed. On the one hand, the labor market continues to cool, enabling the Fed to remain focused on inflation, raising the potential for its first rate cut in September should prices follow suit. On the other hand, the cadence of cooling is accelerating and could pose downside risks to a soft landing for the economy at large." – Noah Yosif, chief economist at the American Staffing Association

"Weakening in private payroll growth points to multiple rate cuts in the second half. Private payroll growth likely will slow even further over the coming months. The trend in jobless claims has continued to deteriorate in recent weeks, hiring and hiring intentions indicators remain depressed, job openings are back to pre-Covid norms, and households have become more fearful that unemployment will rise. Extremely high real interest rates, alongside slowing sales growth, will force more businesses over the coming months to squeeze staffing costs. In addition, the flattening in state and local government revenues over the last year suggests that growth in government payrolls will slow in the second half. Accordingly, we continue to expect growth in total payrolls to drop below 100,000 before the end of Q3 and think that investors are seriously underestimating how quickly the Fed will pivot to reducing rates. After a quarter-point cut in September, we continue to look for half-point easings at both the November and December meetings." – Ian Shepherdson, chairman and chief economist at Pantheon Macroeconomics

"Today's jobs report shows a slight softening in the pace and strength of employment despite the solid headline number. This report does not add urgency to the case for a July Fed rate cut. The market will likely respond to the increase in the unemployment rate to 4.1%, which is above the Fed's year-end projection of 4%." – Eric Merlis, managing director and co-head of global markets at Citizens

"The weaker cyclical categories like manufacturing and temp jobs show demand for labor is slowing. We also had higher unemployment rates and negative revisions. The job market is bending without yet breaking, which boosts the argument for rate cuts. Things are not too hot and not too cold. Goldilocks is here and September is in play." – David Russell, global head of market strategy at TradeStation

"The labor market remains strong, even as unemployment hit 4% last month for the first time since January of 2022. Despite downward revisions in previous reports regarding the number of new hires, job growth continues to beat expectations. Given this continued strength, we don't expect the Federal Reserve to consider cutting rates until at least November, especially since inflation, while easing, is still sticky above the Fed's 2% target level." – Joe Gaffoglio, president of Mutual of America Capital Management

"Following a strong jobs report in June, the July report shows continued strength in the labor market driven by increases in government, healthcare and social assistance. This data, combined with the JOLTs report released on Tuesday (8.1 million job openings and 1.2 job openings per job seeker), supports the narrative of a balancing labor market and moderating wage growth expectations." – Patrick Connell, partner and industry sector head at Aon

"The increase in the unemployment rate, especially for those with at least a Bachelor's degree, suggests a modest cooling of the labor market. So far, we don't see apocalyptic signs within the labor market, but investors should be wary when the labor market is supported by government payrolls. The downward revisions to the previous two months is consistent with an economic slowdown. We should expect more rhetoric out of the Fed about labor market conditions and the importance of keeping policy appropriate for their dual mandate." – Jeffrey Roach, chief economist at LPL Financial

Related Content

• Kiplinger's Earnings Calendar for This Week
• How to Find the Best Small-Cap Stocks to Buy
• If You'd Put $1,000 Into Nvidia Stock 20 Years Ago, Here's What You'd Have Today