Investors put their feet on the gas today and it’s been a good week for Dow Jones Industrial Average in a well. The Dow added about 823 points today and close to 1,600 points, or 5.3%, for the week’s rebound from a brutal decline last week.
The market has struggled throughout the year, as investors fear the Federal Reserve’s hawkish policy to try to curb rising inflation levels that have become warmer than expected. The Fed is also in the process of reducing its $ 9 trillion balance sheet, which effectively involves pulling liquidity out of the economy. All of this has made the likelihood of a recession even higher.
But this week, it looks like investors have finally fixed the situation and bought some of the decline, with 28 of the Dow’s 30 stocks ending in the green today. I recommend looking at the Dow’s top two finishers today, as both stocks look like good investment opportunities.
Take advantage of the upcoming boom in IT spending
A recent report from Credit Suisse (CS 5.50%) suggests that companies may increase their spending on IT services in the coming years.
Analysts Sami Badri and George Engroff said in a report that they expect to increase by more than 10% and 9%, in 2026, compared to 2021 spending on back and front applications.
Few are better positioned to take advantage than the cloud giant Salesforce (CRM 7.44%)that the stock is up 7.5% today and up more than 16% in the past month.
Credit Suisse also conducted a survey that showed 18% of respondents believe Salesforce will experience the largest increase in IT spending in 2022 on a year-over-year basis, among other tech giants. Microsoft (MSFT 3.42%), Amazon (AMZN 3.58%)at Service Today (NOW 3.82%).
Salesforce’s business turned out better during inflation than many probably thought. Even trading at 39 times forward profit, the stock looks attractive considering its massive market opportunity.
Looks good after a stress test
The Dow’s second best performer today is Goldman Sachs (GS 5.79%)with investment bank shares rising 5.8% today.
The Federal Reserve released the results of its annual stress testing last night and Goldman performed well, showing that it can easily maintain healthy capital levels even in an incredibly severe recession.
The Fed conducts stress testing every year to make sure the banking system is resilient and able to handle an economic collapse. This year, it tested banks in a situation where unemployment between the fourth quarter of 2021 and the first quarter of 2024 will rise and peak at 10.3%. Commercial real estate prices will drop by 40% and stock prices will drop by 55%.
During this nine -quarter period, Goldman will suffer more than $ 18 billion in loan losses and nearly $ 21 billion in trading and counterparty losses. However, its average equity tier 1 (CET1) capital ratio, a measure of a bank’s primary capital expressed as a percentage of its risk -weighted assets such as loans, will fall from 14.2% to 8.4%, which is still much at the very end. basic minimum requirement of 4.5%.
The results are better than Goldman did last year and could allow the bank to enjoy lower regulatory capital requirements, and therefore be able to return more capital to shareholders. I expect the bank to release more information about this on Monday. Trading at almost 8 times forward profits, I like the stock.