Re-Up
US Stocks struggled for traction on Wednesday as market participants were concerned about the future path of interest rates, amid a strong set of corporate earnings reports.
Tesla surged 12% after announcing plans to ramp up production and introduce more affordable models, offsetting its weaker-than-expected quarterly results.
Visa rose 0.3%, Texas Instruments climbed 5.6%, and AT&T gained 1.8% after reporting upbeat results.
Boeing's stock fell 2.9% after the company reported its first quarterly revenue decline in seven quarters, despite beating analyst expectations.
We had Meta earnings after the close;
They grew revenues by 27% compared to the same quarter last year.
They grew net income by 114%.
They expanded operating margins from 25% to 38%.
Sounds quite good, but the stock was crushed in after-hours trading. The "sell" algorithms were assumably triggered by;
Meta's guidance for the next quarter, which will be relatively flat quarter-to-quarter revenue growth,
Their plan to spend more than they originally guided in capex for the year.
On the former, keep in mind, Meta has rolled out its new large language model across its family of apps, and has yet to attempt to monetise it (which will be a fresh revenue growth catalyst, along with other AI products).
On the latter, the capex spend is a continued massive investment in infrastructure to support AI. The top end of this year's guidance will put them at $100 billion worth of investment over the past three years on: data centres, servers and network infrastructure.
Meta's goal is to be the leading AI company in the world - the bigger the spend, all funded by cash flow, the more dominant their position in AI is assured.
With that, we'll hear from Microsoft and Google today. They too will report massive investments in AI infrastructure and new product development. For these companies, the Wall Street scrutiny over "mid-points of guidance" and such, on the quarter, is a meaningless exercise.
These earnings calls from the big tech giants are about discovery. What are they learning? What are they building? How fast is the technology revolution progressing? And how do they see it unfolding?
In a lot of ways, this reminds me of the Q3 earnings season, back in October. The tech giants were putting up big numbers. It was hard to find something to be disappointed about, with how they were performing and reorienting their businesses around generative AI. But the stocks were being sold.
Broadly, stocks were in a correction at that time, driven by a Fed that had spent the prior few months re-upping threats of more tightening. And that had sent the 10-year yield surging to 5%.Â
Stocks bottomed the week of big tech earnings, and on the day of the PCE (inflation) report.
That PCE report showed a continued decline in the rate of inflation. Given that the 10-year yield was at a very restrictive level and stocks were in a correction, the Fed signalled the end of the tightening cycle.
Fast forward to today, and we're in a stock market correction. The 10-year yield has had another sharp rise, trading last week to the highest level since early November of last year (4.7%). And we get the PCE report on Friday.
For perspective, core PCE is almost a percentage point lower than it was last October when the Fed signalled the end of the tightening cycle. Rates are more restrictive today, than last October.
But the direction of travel in PCE has changed, and that is what matters. they have given up on their 2% target I believe, but will never admit it, at least not anytime soon.