It was a doozy of a week when it came to keeping up with major companies announcing second-quarter earnings results, not to mention the Fed raising the interest rate and GDP decreasing for the second time in a row…
But what a pleasant surprise it was to see the market maintain its bullishness through all that!
Tech Stocks Miss Earnings Estimates
Key tech stocks missed earnings estimates this week, but those misses had a negligible effect on the market. On Wednesday’s livestream, we covered the reasons why Microsoft Corp. (MSFT) and Alphabet Inc. (GOOGL) did not meet expectations.
Meta Platforms Inc. (META), the company formerly known as Facebook, is still an online advertising juggernaut, but things keep getting worse for the company and CEO, Mark Zuckerberg.
Combined with a tougher advertising market, the fact that Apple Inc. (AAPL) has made it harder for Facebook and Instagram to follow users around the internet led to a decline in sales (for the first time ever) and lower-than-expected profits.
Is this a sign of things to come for other stocks in the tech sector? It’s certainly not good news, but the bad news is primarily a Meta problem. The company’s management is distracted, and competitors like Bytedance (TikTok) are beating them at their core business.
META isn’t a buy at this point, but the 6% drop on Thursday isn’t an indicator that the entire sector is in trouble.
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Sectors to Watch Post-Fed Announcement
The Fed raised the overnight rate another 0.75% Wednesday afternoon in a predictable hike, and stocks skyrocketed after the press conference. We’re at 2.25-2.5% interest now, and the S&P broke above highs from last week. We don’t believe this movement signals a full-on bull market – it’s probably just a relief rally at the moment – but it’s definitely worth taking advantage of.
That boost has benefited some sectors more than others. Tech stocks are up 4.4% as of Thursday; retail stocks are up 3.4%; and telecommunications stocks are doing well, too. The rally probably will continue for these sectors, so now is the prime time to buy value stocks. Check out Thursday’s livestream to learn about our consumer staple picks.
Additionally, Walmart Inc. (WMT), Target Corp. (TGT), and Dollar General Corp. (DG) have adjustments to make after missing their earnings expectations as well. However, those companies provide the aforementioned consumer staples, so they’ll usually come out on top.
We’re still holding the line against investing in emerging markets – the interest rate is just not beneficial, nor is the continued strength of the dollar.
GDP = Recession?
The Bureau of Economic Analysis issued its advance report of the GDP (Gross Domestic Product) for the second quarter was released Thursday, showing the economy shrank by -0.9%.
Unless it is revised higher next month, this is the second quarter in a row that GDP has declined. Traders usually assume that two-quarters of negative GDP signal an official recession, but the National Bureau of Economic Research may not agree yet.
However, what really matters is if traders and consumers believe we are in a recession – which they do. What the numbers say is less critical than how people are going to behave. Our best advice right now is to be wary of the market’s bullishness and pay attention to the sectors and opportunities that offer the best chance of profiting.
Stay abreast of the latest developments during earning season and beyond by subscribing to our YouTube channel, Learning Markets. There, you’ll find in-depth information about stocks, market trends, options trading, and more. It’s free to subscribe and is an indispensable resource during the ups and downs of earnings and reporting season.
John Jagerson and Wade Hansen
Editors, Trading Opportunities
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