Investors turned cautious as Wall Street digests peak earnings, growth worries worsen on new guidance from the CDC, and uncertainty over how far China’s regulatory crackdown will span. After the close, massive earnings from Apple, Amazon, and Microsoft did little to right the ship.
Big Tech Earnings
Apple’s earnings impressed, but a lot of that strong performance was already priced in. The iPhone super cycle is here as strong progress was shown in switching Android customers over and growth in China. Apple showed they are able to diversify revenue streams with strong beats with Service , Mac, iPad, services, and wearables revenue.
Supply issues are impacting iPad and Mac sales and that is probably one of the reasons that is keeping share prices under pressure.
Microsoft had decent results, but decent doesn’t get the job done if you are a mega-cap tech stock. Microsoft shares slump over worries that this is as good as it will get for Azure sales. Microsoft had a strong beat with both the top and bottom line but that was widely expected. Microsoft CFO Hood noted that chip shortages will have some impact over the next full year.
Alphabet shares hit record highs after delivering a massive earnings beat. Adjusted EPS impressed at $27.26, well above the consensus estimate of $19.35 and last year’s $10.13, while operating margin surged 31%, a beat of the 26% estimate. Everything impressed for Alphabet: Google’s ad business roared back, YouTube Ads revenue nearly doubled, and cloud revenue rose over 53% from a year ago.
Starbucks shares slumped on disappointing sales in China and after narrowing comp sales guidance for the year.
The key takeaway from this wrath of earnings was that risk appetite will likely struggle going forward given the persistent struggles with supply chains, concerns over growth in China, and uncertainty over how much more monetary and fiscal support this economy will see. Wall Street has priced in lower interest rates for longer and now we need to see if the current delta variant concerns will make the Fed push back any hint of taper announcement until the end of the year.
Crude price rose slightly after API data showed US stockpiles fell 4.73 million barrels last week. Most energy traders were unfazed by last week’s build, so expectations should be high for the EIA crude oil inventory data to confirm inventories resume their declining trend. The US is still in peak driving season and everyone is trying to make the most of this summer.
Gold is anchored at the $1800 level until after the Fed Chair’s Powell press conference. Given the recent risks to the global outlook and persistent inflationary theme across earnings, Fed Chair’s Powell conference could show some major hints on when the Fed might be eyeing a taper announcement. The bond market has priced in lower interest rates for longer and that has yet to provide a boost for bullion. Powell will probably stick to the dovish scripts but a hawkish surprise could unsettle markets if inflationary pressures are acknowledged. Gold prices will either have a dovish Fed support a rally above the $1850 level tomorrow or it could be in for a rough week.
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