Triple Crown Of Earnings Season: Facebook, Apple, Tesla At The Starting Gate Later

Key Takeaways:

  • Stocks step back ahead of afternoon earnings blitz despite solid Microsoft MSFT results
  • Facebook, Apple AAPL , Tesla TSLA report after the close in triumvirate of earnings data
  • Fed meeting ends today with Powell press conference awaited

This afternoon investors can sit back and enjoy an earnings season triple crown.

Tesla (TSLA), Apple (AAPL), and Facebook (FB FB ) all deliver quarterly results after the close. Before that, we’ll barely have time to digest a Fed meeting and chew over last night’s results from Microsoft (MSFT), Starbucks SBUX (SBUX) and others. It’s a full, rich day.

Looking for a sense of what to expect when AAPL, FB, and TSLA report? There’s more detail on each right here on Ticker Tape, if you check our Earnings preview page.

This morning started with stocks backing away from recent highs in a pretty sharp downturn ahead of the open despite better than solid MSFT earnings (more below). A few things might be pushing stock indices down. First of all, there’s continued worries about the slowness of vaccines getting out. There also could be a little profit taking from the recent record highs.

The third factor is this crazy action in GameStop (GME), which might be making people nervous because they’re unclear what’s going on. Today you’re seeing some of this same drama with shares of AMC Entertainment (AMC). It’s interesting what’s happening in these, but it might be better to be in the stands than on the field, so to speak. GME is trading on things people don’t understand.

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Shares of GME accelerated again Tuesday, jumping an incredible 92%—and doubled again in the overnight hours Wednesday. There appears to be a short squeeze taking place—with at least two prominent short sellers announcing this morning they’ve covered their positions—but more dramatic moves can’t be ruled out.

Microsoft Earnings Receive a Rowdy Wall Street Welcome

Today we’ll see if Microsoft (MSFT) can bust out of a disappointing pattern it’s been in where the company reports great earnings and the stock pulls back. That didn’t appear to be the case Wednesday, with shares up 1.5% in the overnight session after MSFT beat expectations on almost every metric with fiscal Q2 results.

You name the business area—personal computing, cloud, Xbox—and MSFT shattered Wall Street’s projections. It’s pretty impressive to see the gaming segment rise 40% after the introduction of Xbox Series S and Xbox Series X. The cloud also looked very nice, with Azure revenue up 50%. That’s compared with a 48% rise in the previous quarter, and when sequential growth gains steam from a base that was already so hot, it’s a good sign the business is thriving.

Overall intelligent cloud revenue of $14.6 billion came in nearly $1 billion ahead of the average Street estimate. All told, the company’s $43 billion in revenue was around $3 billion above analysts’ estimates and easily topped MSFT’s own guidance that had disappointed investors when it last reported in October. Remember: A company can make a lot of adjustments to help dress up an earnings per share number, but it’s harder to hide a bad revenue reading. MSFT’s Q2 revenue revealed a business that appears to be firing on all cylinders.

Starbucks (SBUX) reported after the close yesterday just as some large states like California and Illinois eased their stay-at-home orders. Restaurants in parts of these states reopened recently, but that doesn’t necessarily mean you can sit down and enjoy a coffee at the SBUX near you. The company is keeping some stores closed for sit-down business based on its own “heat map” of local conditions. The issue of closed stores might be hurting the U.S. business, where same-store sales slumped and overall revenue missed the Street’s expectations. Shares stumbled nearly 3% in pre-market trading.

Shares of Advanced Micro Devices (AMD AMD ) also stumbled despite a decent looking quarter. The company beat Wall Street estimates on top- and bottom lines, lifted by strong gaming demand. Guidance also looked strong. The weak stock market response might reflect a buy the rumor, sell the fact situation, with the stock up 85% over the last year. The other big chip maker reporting yesterday was Texas Instruments TXN (TXN), and they also beat Wall Street projections. The semiconductor space is on a nice earnings run, but TXN, like AMD, didn’t enjoy a pre-market boost. It hit an all-time high last week. See more below on the chip sector.

Washington and the virus got pushed into the background a little with all the earnings news, but it was good to hear that Johnson & Johnson JNJ (JNJ) plans to share its Phase 3 vaccine results by early next week.

Fed Meeting Can’t be Ignored, but Big News Not Expected

The Fed meeting concludes at 2 p.m. ET today, followed by Fed Chairman Jerome Powell’s press conference. Analysts seem to agree that Powell is going to re-emphasize the Fed’s continued commitment to dovish policy and current levels of bond buying—one possible reason why Treasury yields lost ground ahead of the meeting. It’s the Fed so you have to pay attention, but it’s kind of hard to imagine much new coming out of this one.

One difference is that for the first time in four years, the Fed is meeting under a new president and Treasury secretary. Of course, the Treasury secretary should be very familiar to Fed watchers, with former Fed Chair Janet Yellen taking the helm this week. This potentially sets up more of a triumvirate than we saw over the last six months, when the Trump administration wasn’t as clearly committed to new stimulus even as Powell kept beating the drum for more fiscal response. Yellen emphasized the importance of stimulus in her Senate confirmation hearings.

The triumvirate of President Biden, Yellen, and Powell all pushing for more stimulus could be helped by a Congress that now tilts just barely to the Democrats. While there’s still a lot of maneuvering taking place on Capitol Hill around timing and size, Powell now has more power behind the Fed throne to take this fight to a higher level than he did, say, a month ago. It’ll be interesting to hear if he’s asked at the press conference about what size and shape he’d like an additional stimulus to take. He’ll probably also be pressed again on what sort of conditions the Fed might want to see before beginning to taper some of the dramatic monetary accommodations it’s making.

The CME’s FedWatch tool shows futures traders predicting no chance of a Fed rate hike from until September at the earliest. Chances for a hike by then aren’t exactly running too hot, at 6.1%.

Talking Technicals: The S&P 500 Index (SPX SPXC ) is right near all-time highs, but there’s a hint that some of this incredible enthusiasm might be fading a bit. If the going gets muddier, one place to look for possible technical support is the 20-day moving average, which recently sat near 3790. That’s still a ways below the market, however.

The SPX dropped to its 20-day MA on Jan. 15 and quickly rebounded. It also approached it and even fell under it for a few days in December and early January, but “buy the dip” enthusiasm prevented any real chart damage from being done. The 50-day moving average is very close to the psychological 3700 level, so that could be another place to check for support on any sharper downward moves.

Semi-Tough to Pin Down: Pick a riddle, 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 not how it works. It’s one of the biggest industries in the world but you need a microscope to see it. And as we reported above, companies like AMD and TXN can beat on earnings and revenue—and raise guidance—but see shares stumble.

Perhaps the big story in semiconductors is that it’s an industry in flux, and thus hard to pin down. It’s been in consolidation mode—think AMD/Xilinx XLNX and NVIDIA NVDA /Arm as two recently announced deals—but questions have been swirling regarding whether they’ll get regulatory approval. Big Tech—and their cloud computing arms—have been big buyers of chips. But some of them have regulatory concerns of their own on the horizon, and count AAPL as one that’s looked at pulling chipmaking in-house. And of course COVID has been the ultimate guidance wild card. Plus, with a new U.S. administration focused first on the domestic agenda, reports of saber-rattling in and around Taiwan—the source of an estimated two-thirds of the semiconductor industry—could mean supply disruptions at some point. The Philadelphia Semiconductor Index (SOX)—like pretty much all things tech—rocketed to new highs recently. Perhaps it makes sense that some of these chip names sell off despite solid earnings.          

Could Covid-19 Weigh on Health Care Earnings? Vaccine or no vaccine, it looks like we’ll all be masked up for some time to come. Maybe that’s not welcome news to everyone, but for 3M MMM (MMM)—which makes many of the masks used by hospitals and first responders—it’s good for business. Speaking on CNBC Tuesday morning, MMM’s CEO said he sees no decline in demand for masks, including N 95 masks used for heavy-duty protection. Government orders for these continue to roll in. Until recently, MMM’s best-known product might have been Post-it notes, but the pandemic shifted that focus to its health care unit. That’s only 3M’s third-largest business, but Q4 sales in that unit rose 12.3% in 2020 due to robust demand for its disposable respirators and products such as hand sanitizers.

This doesn’t mean everything is rosy for MMM’s health care products or for Health Care as a sector. As MMM’s CEO noted, the pandemic has reduced demand for elective medical procedures, a trend that started almost a year ago and continued into 2021. It’s unclear how long this might take to bounce back, but if it’s true industry-wide it could have negative ramifications for companies like Medtronic MDT (MDT), Boston Scientifi BSX c (BSX), Stryker SYK (SYK), and other surgical product makers. SYK happens to be on the earnings calendar this afternoon, so maybe they’ll provide additional detail on the surgical suite. BSX is expected next Wednesday.

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

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