We have a stacked set of companies reporting earnings this week, including 5 of the "Magnificent Seven Stocks". We also have an important Fed Meeting Wednesday and Jobs Reports coming up this week. In this article we break down our thoughts on this weeks earnings plays as well as a trade idea for $SOFI.
This upcoming week is one of the busiest of the quarter for investors and traders of the Stock Market. We have earnings from five of the "Magnificent Seven" tech stocks, over 100 S&P 500 companies reporting earnings, a Fed Meeting, and the January jobs report.
The term "Magnificent Seven" in the stock world refers to a group of seven high-performing stocks in the technology sector that are very influential to the overall market. The phrase was coined by Bank of America analyst Michael Hartnett last year. The seven stocks are Apple $AAPL, Alphabet (Google) $GOOGL, Microsoft $MSFT, Amazon $AMZN, Nvidia $NVDA, Tesla $TSLA, and Meta (Facebook) $META.
These companies are at the forefront of the Artificial Intelligence, Electric Vehicle, cloud computing and digital services sectors. They are known for adaptability, financial health, global reach, brand recognition worldwide, and a strong market position in their sectors. With technology growing at the rate it has been since the Internet, these stocks are known as "recession proof" to some analysts. In November 2023 King Lip of BakerAvenue Wealth Management said, "They are the highest quality names out there, and frankly, if we do go into a recession next year... I actually think the Magnificent Seven will hold up better.
The five reporting earnings this week are Apple, Google, Microsoft, Amazon and Meta. Julian Emanuel from Evercore described these five earnings as "critical for overall market direction"
The Federal Reserve Board is set to announce its latest policy decision on Wednesday afternoon. Back in December when inflation was still near a 40-year high, it seemed everyone had expectations for a March rate cut. Investors were aggressive to price in a March cut, but have since scaled back that thinking, as economic date since then has surprised investors to the upside. Job growth continued, consumer spending held strong, and GDP growth remained robust.
Headline inflation dipped significantly, falling below 4% and marking its lowest level in nearly three years. This lessened the immediate pressure on the Fed to prioritize inflation control. As evidence mounted that the economy was handling tighter monetary policy better than expected, some investors started questioning the necessity of a March cut.
Despite the shifting narrative, some economists still argue for imminent rate cuts. Even with declining inflation, it remains above the Fed's 2% target. Many economists believe the Fed won't rest until inflation is closer to that goal. Some argue the current high-interest-rate environment is unnecessarily restrictive, potentially hindering economic growth in the long run. They advocate for a gradual easing to find a more sustainable balance. While job growth shows resilience, some signs of weakening in the labor market, like slower wage growth and declining job openings, have fueled concerns about a potential slowdown. This could push the Fed towards easing sooner.
"Labor markets have cooled, and inflation has come down more rapidly than expected absent a large rise in unemployment, but we don't think the Fed is ready to send a strong signal about its intentions just yet" said Bank of America economist Michael Gapen. It seems he believes the Fed is buying time to see more data, some of which will come in the days following the Fed meeting.
8:30 AM EST on Friday is when the January jobs report is scheduled for release. While recent news has been dominated by layoffs, economists don't expect the January jobs report to reflect a widespread slowdown in the labor market.
If this is plays out, the January jobs report might not fully reflect the recent layoff headlines, but it might show the first signs of a slow-down in the previously booming labor market. While new jobs are still being created, the pace is expected to gradually decrease over the coming months. Layoffs in certain sectors, like tech, might not be representative of the entire labor market. It's important to note that continued job growth even with some moderation is still a positive sign for the economy. This information is based on predictions from economists and Bloomberg data. The actual January jobs report is not yet released.
This week is jam-packed with economic releases, offering vital insights into the health of the US economy. Here's a quick rundown of the key events:
Tuesday: The Conference Board's consumer confidence index takes center stage, revealing how Americans feel about their finances and the economy. Investors will be watching closely for any signs of optimism or pessimism, potentially impacting market behavior.
Wednesday: The ADP private payrolls report provides an early glimpse into the official nonfarm payrolls data coming Friday. This indicator offers crucial clues about the job market's health and the Fed's future policy decisions. There is also the Fed Meeting we talked about above.
Thursday: The initial jobless claims report and the ISM manufacturing index offer further insights into the labor market and manufacturing activity, respectively. Both indicators are closely tied to economic growth and can influence market sentiment.
Friday: The grand finale arrives with the nonfarm payrolls report, the crown jewel of economic data releases. This report reveals the number of jobs added in the US economy last month, a key metric for assessing economic strength and the Fed's policy stance.
Bonus: While not as impactful as the headliners, Monday's Dallas Fed manufacturing and services activity readings, along with Thursday's Challenger job cuts and construction spending data, can provide additional color about specific sectors of the economy.
These data releases will paint a clearer picture of the US economy's trajectory. Positive data could signal continued growth and solidify the Fed's hawkish stance on interest rates. Conversely, weaker data could raise concerns about a slowdown and potentially prompt the Fed to shift its policy stance.
We already talked about Apple, Google, Microsoft, Amazon and Meta's earnings this week. There are also a lot of other key companies outside of "The Magnificent Seven" that have earnings coming up. In all, 106 S7P 500 companies (20% of S&P 500 stocks) are set to report earnings this week.
Tuesday: Advanced Micro Devices (AMD), Alphabet (GOOGL), Electronic Arts (EA), General Motors (GM), JetBlue (JBLU), Juniper Networks (JNP), Match Group (MTCH), Marathon Petroleum Corporation (MPC), Microsoft (MSFT), Pfizer (PFE), Starbucks (SBUX), UPS (UPS)
Thursday: Apple (AAPL), Amazon (AMZN), Deckers Outdoor (DECK), Honeywell (HON), Meta (META), Merck (MRK), Royal Caribbean Group (RCL), Peloton (PTON), SiriusXM (SIRI), Skechers (SKX), Tractor Supply (TSCO), The Clorox Company (CLX), United States Steel (X)
I asked a few of our Exclusive In-House Analysts what they think about the companies that have earnings this week. Here's what they said:
$AAPL- Could run into some trouble with the recent lawsuits they have had. I think Iphone sales havent been as high as they used to be since the new phone didnt offer a whole lot of new innovations. Their VR headset was very pricey and they havent sold many of them. I would expect a down move on AAPL, but you have to factor in holiday sales. Maybe they get a boost in revenue into the end of the year when people are buying gifts.
$GOOGL- Recently they have been pushing into the AI space. I would think they do good on earnings. They have been pushing all time highs and may continue with the ability to short squeeze if we do gap up when the number comes out.
$MSFT- Also been really pushing into the AI space. They have partnered with NVDA as well and have been pushing all time highs with the other names. I think it is likely they gap up as well. But this is all speculation, it will come down to the numbers and what they say for guidance on their earnings call.
$AMZN- Something that usually does good on Q4 earnings simply do to holiday spending. They broke records this year on black friday and cyber monday and im sure there was plenty of buying through them for christmas and the holiday season in general. This to me is the highest odds of pushing higher. I won't be playing the earnings, but will watch the fallout for trades. We could use some pullback to keep this "healthy" but I wouldn't be surprised if we see $170 over time with positive earnings.
$META- Instagram, Snapchat both seeing some innovation on the ad space. Influencers really pushing the snapchat side of things. META specifically is also diving into the AI space also partnering with NVDA so definitely a chance to see some good earnings and for this to squeeze through all times highs some more.
$AMD- AI innovations would not be surprised to see some good news out of them.
$XOM- oil/gas prices have come down from where we were at the start of 2023, so I would think this would hurt their margins. This is something I think we see a sell off on unless they miraculously beat earnings unexpectedly. You also have the factor that more electric cars are being used than ever before, so less people are buying gas.
$BA- has to have some good news here or this stock could really slip up. With the recent news on Alaska Airlines with them, we are at a dangerous spot for the stock technical wise. If they dont unexpectadly come out with some good news, we could easily see a big drop here with the negativity surrounding the name.
Out of these stocks, 3 stick out to me as ones that I am bullish on long-term:
$AAPL - Apple is at the forefront of innovation with its groundbreaking products like the iPhone, iPad, and Mac. The company's commitment to pushing technological boundaries ensures a promising future.
$GOOGL - Google's search engine is an absolute powerhouse, with an unrivaled market share. In the digital age, where information is key, Google's dominance positions it for continued success.
$MSFT - Microsoft Azure is a major player in the cloud computing industry. With the ever-growing demand for cloud services, MSFT is well-positioned for continued success and innovation.
I think the "Magnificent Seven" are going to take a bit of a backseat this year, personally, while there are other factors at play. I personally don't like $AAPL, we trade $GOOGL quite a bit and it's levels are delicious, $MSFT is always a goodie in my opinion (especially for long-term holds and dollar-cost-averaging in), $AMZN may experience some hits pretty soon as their competition steps up but their estimates aren't too terrible so I don't see them having issues beating, and $META is always going to be a personal non-favorite for me.
Speaking of earnings plays $SOFI is one that our in-house analysts are personally bullish on long term. They just had earnings today and shot up 20% from the $7.75 range to the $9 range.
SoFi Technologies, Inc. is a digital financial services company that operates in three segments: Lending, Technology Platform, and Financial Services. The company's revenue is primarily generated from lending, with 63.47% of total revenue coming from this segment, followed by Financial Services at 20.21% and Technology Platform at 16.32%.
In terms of profitability, SoFi has a gross profit margin of 81.29%, but it has a negative net profit margin and pre-tax profit margin, indicating that the company is currently operating at a loss. Looking at the company's forward valuation, the forward P/E ratio is quite high at 194.88, which suggests that the market has high expectations for future earnings growth.
In recent filings, SoFi has highlighted its focus on scaling its products through increased brand awareness and network effects, with the goal of achieving contribution profit positivity in its segments by the end of 2023 and beyond. The company also emphasized the importance of deposit funding in providing stability during macroeconomic volatility and mentioned its Tier 1 capital ratio, which was 14.3% as of September 30, 2023.
However, the company also acknowledged potential challenges, such as the impact of rising interest rates on demand for refinancing loan products and the potential negative effects of economic and market volatility on its liquidity, results of operations, and financial condition. Overall, SoFi is working to diversify its business and endure through market cycles, but it faces challenges related to market conditions and profitability.
We are bullish on $SOFI, however they just shot up 20% on earnings. We wouldn't be surprised if we get a little pullback here before going back up again. We will have a bullish trade idea for pullback as well as for a breakout.
Trade Idea #1: Bullish Pullback
Entry: Break below $8.48 followed by a 4H candle close back above
Targets: $9.19, $9.45, $10.48, $11+
Stop Loss: Below low that was formed before 4H candle close back above $8.48
Trade Idea #2: Bullish Current Levels
Entry: Wait for $9.19 to be shown as a strong support
Targets: $9.45, $10.48, $11+
Stop Loss: $8.45
Trade Idea #3: Bullish Breakout
Entry: Break above $9.46 and retest as support (or 3 1H candle closes above)
Targets: $10.48, $11+
Stop Loss: $8.45
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