It’s been a full day thanks to earnings from Apple, Tesla, and Facebook this afternoon and the end of a Fed meeting. The market came under early pressure due to possible profit-taking after the recent record highs.
(Wednesday Market Open) This afternoon investors can sit back and enjoy a triple crown of profitable season.
Tesla (TSLA), Apple (AAPL) and Facebook (FB) provide all quarterly results after the close. Before that, we barely have time to digest a Fed meeting and read the results from Microsoft (MSFT), Starbucks (SBUX) and others from last night. It’s a full, rich day.
Are you looking to get a feel for what to expect when the AAPL, FB, and TSLA report? For more information, check out our earnings preview page here on Ticker Tape for more information.
This morning started with stocks heading for a pretty sharp decline despite better-than-solid MSFT earnings (below) pulled back from recent highs in the Open. A couple of things could push stock indices down. First, concerns about the slowness of vaccines remain. A small profit could also be taken from the recent record highs.
The third factor is this insane action in GameStop (GME) that may make people nervous for not knowing what is going on. Today you’re seeing some of the same drama with portions of AMC Entertainment (AMC). It’s interesting what happens in these, but it might be better to be in the stands, so to speak, than on the field. GME deals in things people don’t understand.
GME stocks accelerated again on Tuesday, rising an incredible 92% – and doubling again in the night hours on Wednesday. There appears to be a short squeeze – at least two prominent short sellers announced this morning that they have filled their positions – but more dramatic moves cannot be ruled out.
Today we’ll see if Microsoft (MSFT) comes out of a disappointing Pattern can come out in which the company reports big profits and pulls the stock back. This did not appear to be the case on Wednesday. Stocks rose 1.5% overnight after MSFT beat expectations for almost every metric with results for the second quarter.
You name the business unit – Personal Computing, Cloud, Xbox – and MSFT has projections for the Wall Street destroyed. It’s pretty impressive to see that the gaming segment has grown 40% after the launch of the Xbox Series S and Xbox Series X. The cloud looked very good too, with Azure sales up 50%. This compares to a 48% increase in the previous quarter. If the sequential growth gains momentum from an already hot base, it is a good sign that the business is thriving.
Total intelligent cloud revenue of $ 14.6 billion was nearly $ 1 billion above the average street estimate. Overall, the company’s revenue of $ 43 billion was roughly $ 3 billion above analyst estimates, slightly exceeding MSFT’s own forecasts, which disappointed investors when it last reported in October. Remember, a company can make many adjustments to improve earnings per share. However, it’s harder to hide poor sales. MSFT’s earnings for the second quarter showed a deal that appears to run on all cylinders.
Starbucks (SBUX) reported after close of trading yesterday when several major states like California and Illinois eased their home stay orders. Restaurants in parts of these states recently reopened. However, this does not necessarily mean that you can sit down at the SBUX near you and enjoy a coffee. The company is keeping some stores closed for seat business based on its own « heat map » of local conditions. The closed store issue could affect U.S. business as sales in the same store declined and total sales fell short of street expectations. In pre-market trading, stocks stumbled nearly 3%.
Advanced Micro Devices (AMD) stocks also tumbled despite a decent looking quarter. The company surpassed Wall Street’s estimates of sales and profits due to strong demand for games. The lead looked strong too. The weak reaction in the stock markets could be because the rumor was bought and the facts sold, with the stock rising 85% over the past year. The other big chipmaker reporting yesterday was Texas Instruments (TXN), and they also beat Wall Street’s forecasts. The semiconductor space is doing well, but TXN, like AMD, didn’t see a boom before it entered the market. It hit an all-time high last week. For more information on the chip sector, see below.
Washington and the virus have been pushed a bit into the background with all the profit news, but it was good to hear that Johnson & Johnson (JNJ) is planning to end its Phase 3 Publish vaccine results by early next week.
The Fed meeting ends at 2 p.m. ET today, followed by Fed Chairman Jerome Powell’s press conference. Analysts seem to agree that Powell will reiterate the Fed’s continued commitment to cautious policy and current levels of bond buying – one possible reason why government bond yields lost ground before the meeting. It’s the Fed, so be careful, but it’s hard to imagine that much of this will come of this.
One difference is that the Fed is meeting for the first time in four years under a new President and Treasury Secretary. Of course, the Treasury Secretary should be very familiar to Fed observers as former Fed Chair Janet Yellen takes over the helm this week. This may be more of a triumvirate than it has been in the last six months, when the Trump administration was not so clearly committed to new impulses, despite Powell beating the drum over and over again to get more financial response. Yellen stressed the importance of incentives in her Senate confirmation hearings.
The triumvirate of President Biden, Yellen and Powell, all of whom are pushing for further incentives, could be backed by a Congress that is now barely turning to Democrats . While a lot of timing and size maneuvers are still going on on Capitol Hill, Powell now has more power behind the Fed throne to take this struggle to a higher level than, say, a month ago. It will be interesting to hear if at the press conference he asked what size and shape he would like as an added incentive. He is also likely to be re-pressured about what conditions the Fed might want to see before it begins to tone down some of the dramatic monetary adjustments it is making.
The CME’s FedWatch tool shows futures traders predicting a chance of a rate hike by the Fed by September at the earliest. The chances of a hike by then are not exactly too high at 6.1%.
TABLE OF THE DAY: ARE YOU LOOKING FOR SUPPORT? The S&P 500 Index (SPX – Candlestick) has fluctuated a bit in recent sessions as it approaches recent record highs. If sales pick up, a possible tech support point may be at the 20-day moving average (blue line), which is just below 3790. Data source: S&P Dow Jones Indices. Diagram source: TD Ameritrade’s thinkorswim® platform. For illustration only. Past performance does not guarantee future results.
Talking Technicals: The S&P 500 Index (SPX) is near all-time highs, but there is some indication that some of that incredible excitement is waning. If things get worse, the 20-day moving average, which was recently at 3790, is a place to look for possible technical assistance. However, this is still well below the market.
The SPX fell to its 20-day MA on January 15th and rebounded quickly. It also got closer to it, dropping below it for a few days in December and early January, but the buzz for “Buy the Dip” prevented any real chart damage from occurring. The 50-day moving average is very close to the 3700 psychological level, so this could be another place to look for support on sharper downward movements.
Semi-Tough to Pin Down: Pick a puzzle, and it probably applies to semiconductors and the chip industry. You hold it in your hand every day, but you never see it. You know what it does, but you don’t know how it works. It’s one of the largest industries in the world, but you need a microscope to see it. And as we reported above, companies like AMD and TXN can beat profits and sales – and raise the forecast – but stocks stumble.
Perhaps the big story with semiconductors is that it is a changing industry acts and is therefore difficult to grasp. It’s in consolidation mode – think AMD / Xilinx and NVIDIA / Arm as two recently announced deals – but there have been questions about whether they’ll get regulatory approval. Big tech – and its cloud computing arms – have been big buyers of chips. However, some of them have their own regulatory concerns on the horizon and count AAPL as one that deals with in-house manufacturing of chips. And of course, COVID was the ultimate wildcard for instructions. With a new US administration focused first on the national agenda, reports of saber rattles in and around Taiwan – the source of an estimated two-thirds of the semiconductor industry – could at some point lead to disruptions in supplies. The Philadelphia Semiconductor Index (SOX) – like pretty much all things technical – has recently hit new highs. Maybe it makes sense for some of these chip names to sell despite solid profits.
Could COVID-19 weigh on healthcare incomes? Vaccine or no vaccine, it looks like we’ve all been masked for some time. Maybe this isn’t for everyone, but it’s good for business for 3M (MMM), which makes many of the masks used by hospitals and first responders. On Tuesday morning, MMM’s CEO said on CNBC he didn’t see any decline in demand for masks, including N95 masks for high-performance protection. The official orders for these products continue. Until recently, MMM’s best-known product may have been post-it notes, but the pandemic shifted that focus to the health unit. This is only 3M’s third largest business, but sales in that unit increased 12.3% in the fourth quarter of 2020, driven by robust demand for disposable respiratory protective equipment and products like hand sanitizer.
This does not mean that everything is rosy for MMM’s healthcare products or for the healthcare sector as a sector. As the CEO of MMM noted, the pandemic has reduced the demand for elective medical procedures, a trend that began almost a year ago and continued through 2021. It’s unclear how long it could take to recover, but if it is true industry-wide, it could have a negative impact on companies like Medtronic (MDT), Boston Scientific (BSX), Stryker (SYK), and other manufacturers of surgical products. SYK happens to be on the earnings calendar this afternoon. Perhaps they will provide additional details on the surgical suite. BSX is expected next Wednesday.
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