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Mega-Cap Mania: Apple, Alphabet, Microsoft Earnings All Ahead After Close Today

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Mega-Cap Mania: Apple, Alphabet, Microsoft Earnings All Ahead After Close Today

Now’s when it starts to get really interesting.

After the close today, investors can look forward to a tech triple-header as Alphabet (NASDAQ: GOOGL),  Microsoft (NASDAQ: MSFT), and Apple (NASDAQ: AAPL) open the books on their latest quarters. Following that, Facebook (NASDAQ: FB) earnings loom tomorrow afternoon, and along the way there’s a Fed meeting.

Things don’t calm down Thursday, either, with Amazon (NASDAQ: AMZN) stepping to the plate that afternoon following the government’s first look at Q2 gross domestic product in the morning.

In all, that should be enough trillion-dollar companies, data, and Fed talk to keep everyone busy. Tech results certainly could exert a major influence on the market as a whole, depending on how they do. Other key companies reporting over the next few days are expected to include Advanced Micro Devices (NASDAQ: AMD), Ford (NYSE: F), Pfizer (NYSE: PFE), Merck (NYSE: MRK), and Boeing (NYSE: BA), none of which are exactly ones you can ignore.

Early on this week as the “mega-cap” Tech companies report, it will be interesting to see if the big Tech names 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.

The wild card could be the Fed meeting, which comes in the middle of all this. Wednesday’s Fed meeting conclusion is at 2 p.m. ET, followed by Fed Chairman Jerome Powell’s press conference. Sometimes the market trades in a tight range ahead of a Fed meeting, but it’s unclear if that will be the case this time considering there’s no expectation from Wall Street analysts of any policy moves by the central bank. 

Tesla Throws Out The First Pitch

Monday had its own earnings headline as Tesla (NASDAQ: TSLA) got things started after the close. Shares inched up just a little after the company beat analysts’ average expectations on the top- and bottom-lines, but the stock has basically been in a holding pattern much of the year between $600 and $700 a share and remains there for now. The beat on earnings looked pretty strong, but revenue wasn’t much above consensus. 

Still, the fact that TSLA shares rose at all after earnings had to be a bit of relief considering shares fell immediately after it reported the previous period’s results despite having its first $1 billion earnings quarter. Focus this time out centers on TSLA’s progress in China, a key market for the company where competition is growing. 

As Reuters reported, for the first time since late 2019, TSLA’s profits didn’t rely on sales of environmental credits to other automakers, a potential sign of increasing financial health for the manufacturing operation. 

In its press release, TSLA named supply chain problems as a challenge, citing semiconductor shortages and port congestion. The company continues to forecast 50% average annual growth in vehicle deliveries, though it expects to see faster growth than that this year. 

All of the big-three Tech companies expected to report later today have their own things to watch. With MSFT, the focus is on the cloud business and recent acquisitions, as well as how the company can take advantage of the new hybrid working environment post-Covid. Apple has a tough act to follow after last quarter’s blowout earnings report, especially with analysts expecting a sequential drop in iPhone sales, and supply constraints in the chip industry. With Alphabet, the focus is on ad sales, as well as its growing cloud business. 

Shares of these three mega-caps have been on the rise over the last month, so one question as they report is whether good earnings—if that’s what they deliver—are already baked into prices. We’ll have to wait and see.

Bland Start To Big Week

Getting back to Monday, it was kind of a vanilla session with the major indices continuing to build on last week’s gains. The S&P 500 Index (SPX) is now up five days in a row after the huge losses it suffered back on July 19, and continues to post new record highs despite the benchmark 10-year Treasury yield staying below 1.3%. Volatility also edged higher yesterday and again this morning, something to possibly keep an eye on (see more below). 

One weak sector Monday was the homebuilders, where stocks lost ground after June new home sales declined 6.6% from the prior month and 19.4% from a year earlier. High prices and tight supplies appear to be crimping the home market, even though the cost of lumber is down significantly from its highs last spring. The homebuilders might still face tough margins thanks to the high cost of materials earlier this year, and it’s also unclear how willing people are to continue chasing prices higher. Still, D.R. Horton (NYSE: DHI) reported solid earnings last week.

Energy had the best day of any sector yesterday despite a slight drop in crude prices, and Financials actually made a little upward progress despite the stall in yields. Some of the so-called “reopening” stocks had a good session, which may suggest investors are a little less worried about the Delta variant of Covid. Still, that’s something to watch as cases grow and some areas of the country consider new restrictions. Last week’s amazing comeback from the Monday losses arguably sent a signal that the market is looking past Delta to better times ahead, but there’s no guarantee. 

philadelphia semiconductor index

CHART OF THE DAY: RISK AVERSION. Both volatility (VIX—candlestick) and the 10-year Treasury yield (TNX—purple line) remain relatively low, but VIX has been creeping up just a bit from where it was a month ago while low bond yields tend to suggest caution among investors. Data Source: Cboe Global Markets. Chart source: The thinkorswim® platformFor illustrative purposes only. Past performance does not guarantee future results.  

Review Session: All right class. Here’s a lesson we’ve gone over a bunch of times in the past and continues to be worth keeping in mind: When stocks rise but all of the so-called “horsemen of risk” including Treasury bonds and volatility also go up, that’s often a sign that something may have to give. We saw that again yesterday when major indices began the day higher but bonds and the Cboe Volatility Index (VIX) also gained ground in the early going. While the combination didn’t immediately drag down stocks, you could argue that the drop in bond yields wasn’t necessarily helpful, either. Remember that yields fall when bonds rise, and when yields drop, it can indicate less investor confidence in the economy. And VIX, which fell below 17 at times last week, kicked up above 18 on Monday. When VIX moves higher, it often can suggest more demand for possible “protection” from fast swings in the stock market. Not that anything can guarantee protection, obviously. So when you see that combination in the future, make a note of it. It’ll probably be on the final exam. 

Drive-Up Service Delayed: As major semiconductor firms report earnings, it sounds like the auto industry continues to struggle with shortages of the chips used in so many vehicle applications today. In an interview with the Associated Press, Stellantis CEO Carlos Taveres said he expects the shortage to extend into 2022, because he doesn’t see Asian chip makers increasing production of the chips that will come west, the AP reported. Stellantis (NYSE: STLA) is the result of a merger between Fiat Chrysler and PSA Peugeot of France, and it’s working to get chips from several suppliers and even redesigning vehicles to use chips that are more widely available. 

Supply constraints could continue for a while, according to a recent McKinsey & Co. report, and there are multiple reasons for that. As a result, carmakers may have to reconsider some of the “just in time” manufacturing processes they’ve adopted over the last few decades to improve efficiency and costs. Some auto plants, like one owned by Stellantis in Illinois, remain mostly closed, and the average price of a new car reached a record $42,000 in June. 

As Fed Meets, Can Stocks Still Count on Support? The “Fed put” seems to remain in place, for now anyway, as the Fed begins its meeting today. That’s a term coined decades ago by traders who got the idea that the Fed would step in to support stocks in any downturn. Fed Chairman Jerome Powell said nothing immediately after the July 19 stock market plunge, but perhaps he didn’t have to. Earlier this month he told Congress the Fed remains committed to its easy money policy, and that elevated inflation is likely to cool off.

None of that sounds particularly hawkish and may have contributed to the decline in bond yields since he spoke. Will yields get back on an upward path in August or head down for another test of recent five-month lows under 1.2%? That’s a key question for the month ahead. Lower yields tend to help the so-called “growth” sectors like technology while rising yields can often assist “cyclical” sectors like Financials and Energy. The growth vs. value tug-of-war that’s continued all year doesn’t show signs of vanishing.

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

Image by David Mark from Pixabay

 

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