If earnings season has a crescendo, we’re right in the middle of it.

Early on, it will be interesting to see if the big Tech names that make up a large chunk of the market move in one direction and pull the broader market with them, or if they offset each other. If it’s the second scenario, the broader indices might not have much direction, considering the power these mega-caps have to pull things one way or the other. If there’s a tug-of-war, the big indices might not move much.

After settling in, there could be a lull in trading until we get to the Fed meeting conclusion at 2 p.m. ET, followed by Fed Chairman Jerome Powell’s press conference.

Big-Tech Tug-Of-War In Early Going

GOOGL and MSFT headed different pre-market directions despite both posting better than expected earnings. As we’ve seen a lot lately, a positive earnings surprise doesn’t always convert into rallying shares, mainly because so many stocks (MSFT and GOOGL among them) have already come so far.

The horse race between Azure and Amazon Web Services (NASDAQ:AMZN) will get more visibility tomorrow afternoon when AMZN reports. That’s when we’ll see if MSFT picked up any more market share vs. its bigger competitor in the Cloud space.

GOOGL’s quarter got a nice boost from better than expected YouTube ad sales, and the company beat analysts’ estimates on top- and bottom-lines. However, traffic acquisition costs—an important metric—rose slightly. Cloud revenue was a little below expectations, which could disappoint investors hoping GOOGL can make a “dark horse” run against the thoroughbreds already far ahead on the track.

One interesting note: FB shares cruised to 2% gains in pre-market trading, possibly reflecting the strength in GOOGL’s advertising results. Everyone was uncertain what the ad environment would look like, and the assumption was that if GOOGL had solid growth, FB might, too. We’ll get the final word from FB itself on that aspect of business this afternoon.

Fed Takes Backseat To Earnings

It’s hard to remember the last time a Fed meeting was the third-most important thing going on in a week. Arguably, earnings and tomorrow’s gross domestic product (GDP) data are first and second, with the Fed a few games back in the standings.

All this doesn’t mean you shouldn’t pay attention to Fed Chairman Jerome Powell’s press conference after the meeting ends this afternoon. It just means many market participants don’t expect to hear much of anything new. We’ll talk a bit more below about what to expect when Powell takes the podium.

Apple, Facebook, And GDP: A Full Calendar

AAPL has a tough act to follow after it enjoyed its first $100 billion revenue quarter last time out. In its fiscal Q1, it surpassed analysts’ estimates in almost every key category, whether it was iPhone sales, services, iPads, Macs, or wearables. Greater China sales rose 57%. Can AAPL hit it out of the park again? That’s what investors are wondering.

Going into AAPL earnings, consider keeping an eye on Services revenues—the category that includes cloud storage and backup, digital content and payment services. It’s grown so quickly that it’s elbowed its way up to the No. 2 business category spot for the company. The question is whether Services can keep up the strong traction it’s developed over the last few quarters.

Mac and iPad sales, too, might be a couple to keep tabs on, as many analysts have pointed out how the pandemic seemed to infuse new life into the lowly personal computer. AAPL’s rollout of new products last week could be a harbinger of what’s ahead.

The good times are also expected to keep rolling for FB. Its advertising prices were up 30% over  2020 levels as of mid-March, according to research from marketing agency Aisle Rocket. In the beginning of April, FB shares hit a new high of $315. In February, its monthly active user base reached 2.8 billion, which includes Instagram, WhatsApp, and Messenger.

The unlikeliest possibility seems to be something under the consensus. That’s because earnings and recent data all point toward impressive economic strength. Analysts have actually been raising their GDP expectations over the last few weeks thanks to all the positive numbers coming in.

To Taper Or Not To Taper: Fed Ahead

Getting back to the Fed, barring some kind of big surprise (and remember, the Fed has said it will give plenty of warning before changing any of its dovish settings), we’re likely to hear more of the same stuff from Powell and company. They’re probably going to acknowledge the recent positive jobs, housing, and retail sales data, but also reiterate that the economy is a long way from returning to pre-Covid health.

Minutes from the March Fed meeting, you might recall, explained that the Fed would only change the current policy once outcomes in the economy are actually achieved, not just because they’re projected to be achieved. They also said the $120 billion a month in Fed bond buying continues to support the economy. The minutes showed the Fed not worried about inflation, though it was discussed often at that meeting.

Also at the March meeting, the Federal Open Market Committee (FOMC) raised its outlook for economic growth and inflation. Its median 2021 GDP outlook went to 6.5%, with unemployment falling to 4.5% by year-end and inflation at 2.2%, which would be slightly above the Fed’s 2% target.

So the question going into today’s press conference is whether Powell indicates that the recent earnings and data have the Fed starting to think at all about tapering at some point. If he does, maybe it’s more of a market-moving event. Any hint of tapering probably would give the dollar a boost. It’s been rising a bit ahead of the meeting after falling from 2021 highs, so maybe some short-covering is happening here.

We’ll be back after the Fed meeting with more analysis of the decision and Powell’s press conference, so stay tuned.

Revenue Eyed Over EPS: In general, earnings continue to look solid, but there’s a bit of a bifurcation developing between earnings and revenue. Take Monday morning, for instance. All 12 major companies reporting in that timeframe beat analysts’ consensus on earnings per share, according to data from Briefing.com. However, three of those came up short on revenue. More companies missed expectations on revenue than on earnings last Friday, too.

Remember, the bottom-line number isn’t really a very organic read on a company’s quarter, considering all the ways this can be massaged by the reporting firm or be knocked around from quarter to quarter by one-time events. There’s no hiding if a company’s revenue growth isn’t there, and that’s why you might see companies that miss on the top line get punished.

Other companies reporting before 3M also talked about raising prices related to the cost of raw materials and supply chain tangles, so now this looks like a trend. It wouldn’t be surprising at all to hear Fed Chairman Jerome Powell get asked about this in his press conference later today, but he’s been saying to expect transient inflation as the economy “snaps back,” to use CEO Roman’s words. Maybe this is evidence. 

TD Ameritrade® commentary for educational purposes only. Member SIPC.

Image Sourced from Pixabay