Tech Earnings to the Rescue!
January’s not over and Wall Street analysts are already breaking out the rodeo metaphors…
“Maybe the bull ride since Dec. 24 has not gone a full ‘8 seconds’ but we’d look to dismount anyway—we’re close enough and bulls can be dangerous animals,” Morgan Stanley’s chief equity strategist Mike Wilson writes in a new report, via MarketWatch.
“We struggle to see the upside in hanging on just to see how long we can,” he continues. “We think it is better to hop off now and rest up for the next rodeo.”
This week’s action certainly hasn’t done much to steady investor confidence. But I say hang on to the bucking bull just a little longer. It might not be time to give up on this rally just yet.
Let’s check in with the averages.
The Dow added 50 points yesterday. But the Nasdaq Composite continues to struggle this week.
As we cut into the meat of earnings season, the tech-heavy Nasdaq dropped almost 1% yesterday. Some of its biggest components fell more than 2%, including Amazon, Facebook, and Microsoft.
Investors also continued to pound the Apple Inc. (NASDAQ:AAPL) sell button as earnings approached Tuesday afternoon. No one wanted to have any part of this tech icon following a disastrous fourth-quarter, sending shares skidding lower by 2% yesterday.
But that turned out to be a big mistake…
Thanks to the power of low expectations, Apple wowed investors by beating earnings estimates by a penny.
Everyone expected the worst from Apple. After we recently learned iPhone sales are cratering and the company is having a rough time in China, the Apple bandwagon became noticeably lighter.
But Tim Cook & Co. know how to play Wall Street’s favorite game: lower expectations, then beat the revised number.
The results speak for themselves as Apple shares remain on track to open higher by almost 6% this morning.
If you were short Apple going into last night’s announcement, I have to ask: What were you thinking?
Following a nasty 35% drop from its October highs, Apple has been stacking the deck for a slim earnings beat for the better part of the past two months. Management already softened the blow by cutting guidance weeks ago. The company also said it would stop reporting iPhone, iPad, and Mac unit sales. That sleight of hand was all it took to get analysts and investors to focus on its growing services business and ignore the double-digit dip in iPhone demand.
Not to be outdone, the tech bears also couldn’t wait to stomp all over Advanced Micro Devices Inc. (NASDAQ:AMD) after this week’s NVIDIA Corp. (NASDAQ:NVDA) disaster.
“While the other shoe has dropped at NVIDIA, we think AMD is further behind in working through its GPU inventory issues,” one analyst commented earlier this week, claiming the company posed a “significant risk” of a major earnings miss.
Sellers leaned hard on AMD heading into last night’s earnings report. But the chipmaker hit its magic earnings number. Shares are now set to jump double-digits at the opening bell.
AMD even whiffed on its top-line estimates and still managed to impress investors thanks in part to record GPU datacenter revenue and strong full-year sales guidance moving into 2019.
Thanks to this positive reaction, our AMD trade survives and moves back into the green. A strong move toward $22 should extend this fresh breakout.
Miss our AMD buy signal? Click here to get my next big trade…
Next up on the earnings tear sheet, who should we blame for the slow death of Harley Davidson — millennials or tariffs?
Harley Davidson Inc. (NYSE:HOG) shares took another beating yesterday, falling more than 5% after the company missed earnings expectations and says it expects its lowest shipments in eight years in 2019.
Harley claims Trump’s new tariffs took a “big bite” out of fourth-quarter profits, Business Insider reports. But Harley might have bigger problems as U.S. sales continue to slump as its core demographic — baby boomers — hang up their leather jackets.
“Harley’s loud, bulky and expensive cruising bikes preferred by baby boomers have not clicked with millennials,” Reuters reports, “as many of them spend on paying off home, auto and student loans.”
Still, Reuters notes, Harley is planning to introduce cheaper, “nimbler” models to try and finally grab some of that sweet millennial market share.
But it might be too little, too late. This downtrend doesn’t look like it’s about to reverse anytime soon.