It’s a busy week on Wall Street.
We’ll hear from some of the biggest stocks in the S&P 500 when Tesla Inc. (TSLA), Microsoft Corp. (MSFT), and Texas Instruments Inc. (TXN) report earnings from Q4. Visa Inc. (V) and American Express Co. (AXP) are two other notable companies that will report earnings this week.
As banks report earnings, it helps us get a better picture of how fast the U.S. economy grew during Q4 2022. After a tumultuous 2022 chock-full of tech layoffs, we’re looking to the big companies’ earnings today and throughout the week to see what’s changed, if anything.
The tech sector comprises 20% of the entire stock market, so when they do well, the market tends to do well. Conversely, negative earnings reports have an undesirable effect on the entire market.
Most people who own broad stock market holdings or ETFs own tech stocks, so when they tank, so might your retirement account. That might sound grim, given today’s environment, but hanging on to those holdings will prove wise in the long run. We’ll discuss how companies can profit as they diversify offerings and report stronger earnings this year…
And if you were looking for a sneak peek of what to expect at the Fed’s next meeting on Feb. 1, pay attention to its favorite inflation indicator: the PCE Price Index, which comes out Friday.
How the PCE Helps Us Find “The Next Big One”
Our Strategic Trader readers are familiar with our affinity for keeping certain retail stocks in our portfolio, and that’s why we keep such a close eye on the Personal Consumption Expenditures Price Index.
The core PCE Price Index measures what people in the U.S. are paying for goods and services – excluding food and energy, which can cause the index to fluctuate wildly… eggs, anyone?
It’s also one of the key economic indicators driving the Federal Reserve as the Fed sets monetary policies. We don’t anticipate any wild fluctuations in the core PCE this time around, and we believe the Fed will begin a turnaround on its steep rate hikes.
In December, after months of 75-basis-point hikes, it raised rates just half a percentage point. It looks like that trend will continue in 2023 as inflation loosens its grip on the economy, and this month’s hike could be just a quarter of a percent.
The general rule of thumb is that the market and interest rates move in opposite directions, so we anticipate a bump in stock value after the announcement next week. We’ll be watching the financial, tech, and consumer defensive sectors – stay tuned.
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Tech Stocks to Announce Earnings Amid Massive Layoffs
Big tech is looking to reset after a dismal 2022 that saw layoffs from Meta Platforms Inc. (META), Amazon.com Inc. (AMZN), and Intel Corp. (INTC), to name a few. We’re just a few weeks into 2023, and the trend continues.
This week alone, both Spotify (SPOT) and Alphabet Inc. (GOOGL) each laid off approximately 6% of their workforce. That amounts to about 800 former Spotify employees and a whopping 12,000 at Google.
- Spotify attributed the cuts to hires made during the COVID-19 pandemic to keep up with demand. Now that demand has slumped, and the music-streaming giant is dismissing many of the hires made from 2020 to 2021. SPOT stock rallied 5% Monday morning after climbing 4.6% on Friday.
- Higher-ups at Alphabet also blame pandemic hiring during “periods of dramatic growth… over the past two years,” along with a slump in digital advertising as people shift from screens to in-person experiences, like travel.
Google has never really faced a threat from competition, but Microsoft’s acquisition of ChatGPT, the enhanced, conversational-style AI chatbot, could change the search engine game as it adds the advanced technology to Bing, its existing search engine.
Speaking of Microsoft, we eagerly anticipate their earnings announcement at the close of the market today. Although there have been warning signs from the tech sector, expectations are also very low.
Because the bar has been lowered so far, we don’t think the market will come to a screeching halt, but earnings could trigger short-term profit-taking.
With everything that’s coming this week, traders have pushed implied volatility levels higher, which means option premiums are going up. This gives us an amazing opportunity to generate some income in the Strategic Trader portfolio during the next few days.
We’ve already taken advantage of the market’s fluctuations this year by closing out five winners for an average annualized return of 28.52% over an average period of just 11 days.
Every week, we play the market for what it’s worth – whether it’s riding high on good news and rallies or being dashed against the rocks. There’s always a chance to make money – and we’ll show you just how to do it.