Tech Time: Microsoft, Advanced Micro Devices, Alphabet Reporting After Close Today

Ready or not, it’s time for all of us to put our Fed hats on. Again. 

It’s only been six weeks since the last Federal Open Market Committee (FOMC) meeting, but they’re gathering again today. The usual press conference featuring Fed Chairman Jerome Powell comes right after the meeting ends at 2 p.m. ET tomorrow, and analysts don’t expect any change in policy. 

Trading might be a little slow ahead of all this, which is kind of typical when investors await the latest from Powell and company. Major indices didn’t move much in the overnight session. That being said, the Fed may be about the third-most important event this week after gross domestic product (GDP) and Tech earnings. 

Looking ahead to this afternoon, Tech takes center stage with earnings from Alphabet GOOGL, Microsoft MSFT, and Advanced Micro Devices AMD. More on all that farther down. 

This earnings season is now about one-third finished, and 84% of companies have beaten Wall Street’s consensus earnings estimates, according to FactSet. That’s well above the average level of positive surprises, which indicates analysts may have been too conservative heading in. General Electric GE did very well but the stock’s down a bit, and Starbucks SBUX also reports later on, which could be interesting. 

Fed Ahead As Investors Await Views On Latest Strong Data

Unlike last month, we don’t get a “dot-plot” of Fed officials’ outlooks for rates this time around. For that, we have to wait until the mid-June FOMC meeting. But Powell might be asked to comment on recent booming economic data and higher than expected inflation readings. 

The Fed puts return to a healthy jobs picture high on its list, and the last two initial jobless claims reports and March payrolls both suggested progress. It could be interesting to get Powell’s thoughts on these numbers and what they might mean going forward. 

That said, it would be very surprising to hear Powell say anything about getting more hawkish anytime soon. The Fed’s feet seem firmly planted in the dovish camp, and Fed funds futures suggest no change in rate policy this year. It’s likely Powell wants to see a few more solid jobs reports—including May payrolls—before making any new pronouncements about the employment picture. 

It’s kind of unfortunate timing that the Fed meeting concludes Wednesday—a day before Powell and the rest of us get a first look at the government’s estimate for Q1 gross domestic product (GDP) growth (see more below). Thursday also brings the weekly initial jobless claims data. 

After two solid weeks in a row, it would be good to see more improvement. However, anything under 600,000 would extend the streak of reports below that level. It’s still high, but a major improvement after months of 700,000 to 800,000 new claims a week. Before Covid, the average was well below 300,000, but it’s unclear when we’ll get back to those kinds of levels.

Heart Of Tech Lineup As Microsoft, Alphabet Approach Plate

Aside from the Fed, earnings continue hot and heavy this week, highlighted by a couple of key semiconductor companies (see below). There’s also MSFT and Alphabet (GOOGL) after today’s close and Apple AAPL after Wednesday’s closing bell. Amazon AMZN comes up to bat Thursday. 

We’ll talk more about AAPL and AMZN tomorrow, but with MSFT and GOOGL, cloud computing results are probably high on most investors’ lists of things to watch, along with their forecasts for the coming quarter. 

Back in Q2 last year, GOOGL saw its advertising revenue sink as companies held back ad spending amid Covid. As economies began opening up, GOOGL benefited from the ad spending bounceback—a big deal when you consider it made up around 81% of GOOGL’s total revenue last time out. The question is whether that strength continued in Q1. 

Google Cloud’s platform also had an amazing run last year, but still only makes up a small aspect of total revenue and is far behind competitors like MSFT and AMZN. We’ll see if that aspect of the company got more traction. The stock went on a tear the last few months, up about 35% year to date. 

MSFT’s recent announcement of its  $20 billion acquisition of artificial intelligence (AI) software company Nuance Communications NUAN will likely be on peoples’ minds when the company reports fiscal Q3 earnings later today, but so will the usual suspects like cloud, Office, and LinkedIn. Last time MSFT reported, fiscal Q2 Azure revenue grew 50% and total commercial cloud revenue rose 34%, setting high bars for MSFT. 

That’s not all. Other key companies reporting over the next few days include Starbucks, Amgen AMGN, Caterpillar CAT, Baxter BAX, Ford F, and Facebook FB. Strap on those seatbelts. 

Tesla’s Quarter Fully Charged, But Stock Goes Unrewarded

All this follows a busy earnings afternoon yesterday featuring the latest from the EV universe with earnings from Tesla TSLA. Despite beating on earnings and revenue and looking pretty impressive on a bunch of other metrics, shares fell in pre-market trading. 

With TSLA earnings, the ironic thing is that one of the areas where they did best was selling a chunk of their Bitcoin holdings.

A lot of stocks have slipped this earnings season on good results, so it probably just reflects how the overall market is at near record levels. As we’ve been talking about, expectations are high and it takes a lot to go up. The theme so far this earnings season is you can have a good quarter, but your stock won’t necessarily be rewarded.

CHART OF THE DAY: A TALE OF TWO COMMODITIES. Looking back over the last year with this chart, gold (/GC—candlestick) and crude (/CL—purple line) have basically traded places. Strong economic growth in the U.S. helped send crude to 14-month highs last month and it’s not far below that now, while gold got crushed earlier this year in part thanks to progress fighting crude that sapped market volatility. Gold’s making a comeback attempt lately, but it’s still well below levels from earlier this year. If the Fed stays dovish, that might give gold more support. Data Source: CME Group.  Chart source: The thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results. 

GDP Watch: Of all the government data coming across the wire this week, few reports have more relevance than Thursday’s release of the advance report on Q1 gross domestic product. The Wall Street consensus is for a gain of 6.5%, according to research firm Briefing.com. That wouldn’t be too shabby after the prior quarter’s 4.3% gain. However, the Atlanta Fed’s GDPNow meter looks for even better than the one from the analyst community, with a projected reading of 8.2%. 

It probably goes without saying that we don’t often see readings like these on GDP. A Goldman Sachs GS report recently predicted 8% overall growth for the full year, which would be the best annual performance in about seven decades. Obviously, this is against an easy comparison, considering 2020 included a recession. The more important question, and one the Fed is probably asking, is whether this type of growth can get the economy back to where it was before Covid. Some metrics, like manufacturing and housing, have improved from pre-Covid days. Others, like joblessness and earnings, aren’t there yet. 

On Patrol with Chips: Two more major semiconductor companies, Texas Instruments TXN and Advanced Micro Devices are expected to report after the close today. Before we get to them, it helps to get a lay of the land by looking back in a little more detail at what Intel INTC said in its report last week.] 

INTC’s Q1 revenue and earnings topped analyst expectations, but the quarter didn’t end without setbacks. First of all, overall sales were largely flat, which raises questions about how other chipmakers might have done in the quarter. INTC’s data center chip sales were elevated last year by work-at-home demand, but the chipmaker faces stiff competition from AMD and Nvidia NVDA in that arena. Look for AMD to possibly shed more light on the data chip competitive picture today. Also on the negative side, Apple—which uses INTC chips—has begun turning toward its own chip production for its Mac line. 

INTC said it plans to invest $20 billion into the development of new chip manufacturing plants. Instead of farming out its product designs to foundries for completion, INTC aims to become one, manufacturing not only its own chips but those of others as well, a potentially pivotal move for the chip giant. What will TXN and AMD be thinking in the wake of this news? Is vertical integration now the state of the industry? Does INTC’s move in this direction pose a possible competitive challenge? We may have a chance to find out after the close. 

Yield Pause Length Could Depend On Europe: As the Fed gathers in Washington this week, there’s still a lot of debate on Wall Street about why the rally in Treasury yields hasn’t continued. The 10-year yield peaked near 1.78% late last month but is near 1.58% this morning. One possible reason, according to some analysts, is the lack of competition from the key German bund yield. The bund recently sported a yield of negative 0.25%, meaning the spread between U.S. and the benchmark European rate is around 180 basis points. That’s up from around 150 basis points earlier this year. As long as the premium for U.S. yields is this high, U.S. Treasuries likely remain at levels where they’ll attract yield-hungry investors. This buying interest pumps up the underlying asset and reduces the yield.

However, there’s a chance Europe’s economy could be coming around, which might mean a narrowing in that spread and perhaps some competition from European and other world bond markets. This is one thing to potentially watch in May, especially if Europe makes more progress with vaccinations. If the bund yield starts creeping up, look for a better chance of the 10-year Treasury yield continuing what looked like a steady move higher, especially if U.S. inflation readings over the next few months continue to be as firm as they were in March. A weak bond auction Monday reinforced possible bullishness around yields.

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

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