#earningsreports

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InvestTalk - 2-3-2023 – What Can We Learn from Earnings Reports, So Far?

Investors had overestimated the potential of technology, but Apple, Amazon, and Google's parent company Alphabet all announced disappointing results.

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Tech Stocks Drive Market Volatility: Buying Opportunities Amidst Uncertainty #10yearTreasurynote #bondyields #buyingopportunities #deliverytargets #earningsreports #inflationconcerns #interestratehikes #markettrends #marketuncertainty #marketvolatility #Stockmarket #techstocks #Teslashares #VIXindex

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Qualcomm Exceeds Analyst Expectations in Q1 Earnings Report

Handset Chip Sales Surge 16% Year Over Year

In a fiscal first-quarter report released on Wednesday, Qualcomm outperformed analysts’ expectations, propelled by a robust 16% year-over-year increase in sales of handset chips. While Qualcomm’s shares dipped slightly by more than 1% in extended trading, the company’s positive performance in chip sales marked a notable achievement.

Fiscal Overview and Expectations for the Current Quarter

Qualcomm reported a 24% rise in net income for the quarter, reaching $2.77 billion, or $2.48 per share, compared to $2.24 billion, or $1.98 per share, in the same period the previous year. Despite this impressive result, Qualcomm’s shares experienced a minor decline in after-hours trading.

For the ongoing quarter, Qualcomm anticipates adjusted earnings between $1.73 and $1.93 per share, with a revenue forecast ranging from $8.9 billion to $9.7 billion. These projections fell short of consensus expectations, as reported by LSEG, which estimated earnings at $2.25 per share on revenue of $9.3 billion.

Qualcomm’s Diverse Chip Technology Applications

Widely recognized for its smartphone chip manufacturing, Qualcomm, under CEO Cristiano Amon, has been strategically expanding its chip technology into various markets beyond smartphones. This includes applications in PCs, automobiles, and virtual reality headsets. While the global smartphone market has faced challenges in recent years, Qualcomm remains a significant player.

During the December quarter, the company recorded the shipment of $6.69 billion in handset chips, reflecting a substantial 16% increase from the previous year. The positive momentum in handset chip sales indicates a potential stabilization in the smartphone market after a two-year decline. Qualcomm expressed optimism, expecting global handset sales to remain flat year over year.

Diversification Efforts and Future Prospects

Qualcomm’s efforts to diversify its business beyond smartphones have manifested in its Internet of Things (IoT) segment, which saw a 32% sales decline to $1.13 billion. However, the company remains committed to leveraging its chip technology in the automotive sector, reporting a 31% increase in sales for its nascent automotive business, reaching $589 million.

Its overall chip sales business, encompassing automotive, IoT, and handsets under QCT, achieved $8.42 billion in revenue during the quarter, reflecting a commendable 7% annual growth. The licensing business, QTL, reported $1.46 billion in revenue, experiencing a modest 4% annual decline.

Strategic Outlook and Shareholder Returns

Looking ahead, Qualcomm continues to focus on selling chips to automakers, a strategy expected to unfold over several years due to the industry’s regulatory complexities. The company’s commitment to innovation and growth is underscored by significant investments, including $800 million in share repurchases and $900 million in dividends during the quarter.

In a call with analysts, CEO Cristiano Amon revealed that Apple has agreed to extend its patent licensing agreement through March 2027, highlighting the company’s collaborative partnerships and commitment to long-term business relationships.

Curious to learn more? Explore our articles on Enterprise Wired

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Dow Jones Futures Surge-Microsoft & Alphabet Results Awaited!

In this article, we bring you the latest updates on Dow Jones futures and how they are set to rise ahead of crucial earnings reports from tech giants Microsoft and Alphabet. 

Dow Jones Futures Surge as Microsoft and Alphabet Gear Up to Report Earnings

The excitement in the financial world is palpable as Dow Jones futures witness a significant surge on the evening of July 22, 2023. Investors eagerly await the key earnings reports from two tech behemoths - Microsoft and Alphabet. The Dow futures contract for September delivery shows a notable increase of 100 points, or 0.3%, resting at 31,240. Simultaneously, the S&P 500 futures contract for September delivery is also on the rise, up by 12.5 points, or 0.3%, reaching 3,875. The Nasdaq 100 futures contract for September delivery follows suit, ascending by 25 points, or 0.2%, now standing at 11,550. Microsoft Earnings Report Projections The spotlight is on Microsoft as it prepares to disclose its earnings after the bell on Friday. Market analysts have their expectations set at earnings of $2.48 per share on revenue of $51.7 billion. Such favorable numbers could instill confidence among investors and potentially lead to a rally in the stock market. Alphabet Earnings Report Projections Alphabet, the parent company of Google, is scheduled to unveil its earnings on Monday. Analysts predict earnings of $10.68 per share on revenue of $68.04 billion. A positive earnings report from Alphabet could further buoy market sentiment, contributing to the overall market's upswing. Other Noteworthy Earnings Reports Aside from Microsoft and Alphabet, several other prominent companies are slated to release their earnings reports on Friday. These include Johnson & Johnson, Travelers, and Goldman Sachs. These reports could also exert considerable influence on market trends, depending on whether they exceed or fall short of expectations.

Assessing the Stock Market's Volatility

The stock market has experienced its share of volatility in recent weeks. Investors find themselves grappling with the delicate balance between potential economic growth and the looming risk of a recession. Notably, the S&P 500 has witnessed an 18% decline year-to-date, leaving many investors on edge. Optimism for the Second Half of the Year Despite the uncertainty, some analysts hold an optimistic view for the second half of the year. A key factor in this positive outlook is the Federal Reserve's likely decision to raise interest rates at a more gradual pace than previously anticipated. Such a strategy is aimed at bolstering economic growth and could potentially set the stage for a market rebound.

Factors Influencing the Stock Market on Friday

As we navigate through this critical period, several factors could sway the stock market's trajectory on Friday. It is crucial for investors and market participants to stay vigilant and keep an eye on these determinants: 1. Earnings Reports The earnings reports of Microsoft and Alphabet will undoubtedly be the driving force behind Friday's market movements. Positive earnings surprises from these tech giants could instill investor confidence and lead to a bullish trend. Conversely, disappointing reports may exert downward pressure on the market. 2. Economic Data The release of key economic data, such as the jobs report, is closely monitored by investors. Favorable economic indicators that reflect a healthy pace of growth may inspire optimism and drive market gains. Conversely, signs of a slowdown could dampen market sentiment. 3. Geopolitical Risks Geopolitical events have the potential to disrupt the markets. Ongoing conflicts, such as the war in Ukraine, pose geopolitical risks that could trigger market volatility. Any escalation of these tensions may lead to cautious investor behavior.

Navigating the Near-Term Volatility

As we navigate the near-term volatility, it is essential to recognize that the market remains dynamic and subject to swift changes. The delicate interplay between economic indicators, corporate earnings, and geopolitical events can cause sudden fluctuations.

Final Thoughts

In conclusion, Dow Jones futures are witnessing a rise ahead of key earnings reports from Microsoft and Alphabet. The stock market's performance on Friday is contingent upon a host of factors, including the earnings reports, economic data, and geopolitical risks. While the market remains volatile, there is optimism for a potential rebound in the second half of the year. Read the full article

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Market Volatility Alert: US Banks' Take on Credit Squeeze

Wayne Cole provides a brief insight into the upcoming trading day in the European and global markets. Despite the new week, Asia seems to be off to a slow start, which is not unusual, as the market gears up for the release of US consumer prices data, set to be a major test of the market's confidence in the Fed's decision to halt rate hikes. Futures currently show a 90% likelihood of steady rates in June and a 38% chance of a cut as early as July, leaving the market exposed to an upside surprise on the CPI.

While the median forecasts predict a rise of 0.4%, the range is 0.2% to 0.6%, and any unexpected figure could have a significant impact on the market.

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In the stock market, a short squeeze is a rapid increase in the price of a stock owing primarily to an excess of short selling of a stock rather than underlying fundamentals. A short squeeze occurs when demand has increased relative to supply because short sellers have to buy stock to cover their short positions.

What's a Short Squeeze and Why Does It Happen?

Key Points

A stock that rallies hyperbolically when there are no obvious current events driving the response, could be experiencing a short squeeze.

A short squeeze can potentially be worth trading, but only if you exercise great care.

The aim of short selling is to generate profit from a stock that declines in value. (Short selling involves borrowing a security whose price you think is going to fall from your brokerage and selling it on the open market. Your plan is to then buy the same stock back later—hopefully for a lower price than you initially sold it for—and pocket the difference after repaying the initial loan.) While there are potential benefits to going short, there are also plenty of risks. One big risk is when a bullish catalyst (earnings, news, technical event, etc.) pushes the stock price higher, prompting short sellers to "head for the exits" all at once. As the shorts scramble to buy back and cover their losses, upward momentum can build on itself, causing the stock to move sharply higher. This is known as a short squeeze.

Understanding the short squeeze

What makes a short squeeze so dangerous? Think of it this way: When you buy a stock, the worst thing it can do is drop to zero. But the upside is unlimited. If a stock has a growth narrative and there are enough believers, the share price can go well beyond what looks reasonable by traditional fundamental metrics.

Classic signs of a short squeeze can include:

A security has a significant amount of short sellers (short interest) who believe the stock price is going to fall, and then instead the stock price sharply rises, forcing many of these leveraged short sellers to quickly exit their positions, buying back the stock in the face of potentially increasing losses.

A dynamic narrative that tries to justify the detachment of share prices from a company's intrinsic value

A case for massive growth as well as for financial stress

Traders with deep pockets aligned on both sides of the trade, often using options and other leveraged instruments

With GameStop (GME) in 2021 and Tesla (TSLA) in 2020, there were many classic signs of a short squeeze. Traders with short positions were covering because they had to, either because they had sustained large losses or shares were no longer available to be borrowed. In 2022, short sellers targeted troubled companies such as Bed, Bath & Beyond (BBBY) and Carvana (CVNA). In early 2023, the most heavily shorted companies included Coinbase Global (COIN), a cryptocurrency firm, and Occidental Petroleum (OXY).

When a stock suddenly experiences a dramatic climb, with or without good news, it's important to ask yourself, "Who would buy shares up here?" The answer? Someone who doesn't have enough money to hold on any longer, or someone whose pain threshold has finally been crossed.

Proceed with caution

If you're a long-term investor who happens to own a stock that's getting squeezed, it's probably not a good time to trade. Instead of acting on emotions, remember what got you to where you are in your investing journey—and where you'd like to be. If buying a stock that's in squeeze territory doesn't fall within your long-term objectives, you might want to step aside and not trade. If you do decide to venture in, make sure you have no illusions and no misconceptions of the dangers. Understand that when you’re dealing with a stock that’s being squeezed, you're taking a big risk. 

Identifying a short squeeze can be relatively simple—after the fact. The trick is to identify the conditions that could lead to a squeeze ahead of time, and then determine how you might want to play it (or not). 

Shorting a stock is a complicated business. Because you can't sell something you don't own, shorting requires the seller to "borrow" the stock (and pay interest to the stock lender), then sell it. Locating the shares can sometimes be difficult for your clearing firm because of high demand or a small number of outstanding shares.

Measuring a short squeeze can involve a metric called the short interest ratio, a.k.a. "days to cover." It indicates, in days, how long it would take to cover or buy back all the shorted shares. Basically, you divide the number of shares sold short by the average daily trading volume. The more days to cover, the more pronounced the effect can be.

Another measure is "short interest as a percentage of float," which reflects the number of short-sold shares in proportion to the total number of shares available for trading in the public markets. Most stocks have a small amount of short interest, usually in the single digits. The higher that percentage, the greater the bearish sentiment may be around that stock. If the short % of the float reaches 10% or higher, that could be a warning sign.

Consider the fundamentals

If you're buying a stock that seems to be in the throes of a short squeeze, especially at high levels, it helps to understand other potential reasons why the stock might be moving. 

Consider checking the fundamentals. Is there anything that would make you want to own the stock? Are you tempted to buy it because everyone else is? It's important to always do your homework, and remember it's never wise to go all in. A stock that's in a short squeeze may still have a long way to climb, and if you don't think the fundamentals support higher prices, then perhaps you should look elsewhere.

In the case of TSLA in 2020, there were some positive fundamentals underlying the short squeeze, including the company's more consistent profitability and hopes of it being included in the S&P 500 Index (SPX). The stock saw its share price run up to new highs, then decline nearly 60%. 

But then TSLA rallied again and split its shares, and its addition to the SPX became a reality, illustrating that a short squeeze doesn't always have to end badly. Other stocks that were caught up in short squeezes haven't always fared so well, in part because they didn't have the fundamental support. 

Playing the squeeze on the long side? 

If you want to trade a stock during what might be a short squeeze—that is, buying a stock with a higher short interest in order to potentially play the upside of a squeeze—here are some things to consider:

Trading such a stock may be okay as long as you understand the risk and how to control it. Whether you make small or large trades, you have to control and limit the risk. Decide how much money you would be comfortable losing in any trade ahead of time.

Don't underestimate how high the stock can go and how long it can take. When a stock gets caught up in a short squeeze, analysts generally expect it to correct eventually, but no one knows to what price and when; if it happens at all. 

If the stock still has very weak fundamentals, yet is moving significantly higher without any real, structural changes in the corporation, then be extremely careful buying on this type of upward momentum. The markets may run out of new buyers willing to pay higher and higher prices and the stock may in the end fall quickly. 

The bottom line

A short squeeze is a high-risk situation and it may cause havoc in the market, but most don't last forever. Most eventually subside.

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Global Market Update: Key Earnings Reports from Tesla, Alphabet, and Luxury Brands Amid Economic Uncertainties

As the global market navigates through a wave of volatility, traders are keenly awaiting pivotal earnings reports due after the market close from tech giants Tesla (NASDAQ) and Alphabet (NASDAQ), the first of the "Magnificent Seven" stocks to disclose their financial performance. Tesla's profit margins are anticipated to have declined, reflecting ongoing production and pricing challenges, while Alphabet is expected to post its fourth consecutive quarter of double-digit revenue growth, underscoring its robust advertising business despite broader economic headwinds.

In a notable shift, Google has abandoned its plans to eliminate user-tracking cookies from its Chrome browser, a move that could have far-reaching implications for the digital advertising landscape.

Post-market attention will also be on Texas Instruments (NASDAQ) and Visa (NYSE), while major corporations like Coca-Cola (NYSE), General Electric (NYSE), General Motors (NYSE), and UPS are set to report their earnings before the trading day begins.

In Europe, investors will focus on Thales’ earnings in the Paris morning and Louis Vuitton's financial results later in the day, which are expected to provide insights into Chinese consumer demand. Despite a recent surge in luxury stocks following unexpected rate cuts in China, the sector remains under pressure due to a prolonged downturn in spending within the world's second-largest economy. This is further compounded by recent profit warnings from Burberry and Hugo Boss and a 27% drop in quarterly sales in Greater China reported by Richemont last week, dimming hopes for a stronger performance in the latter half of the year.

Asian markets saw a steadier session, buoyed by a rebound in chipmaker stocks on Wall Street.

On the economic front, key indicators to watch include Europe’s consumer confidence data, U.S. existing home sales figures, and the Richmond Fed manufacturing index.

The earnings reports from industry leaders such as LVMH, Thales, Coca-Cola, General Electric, General Motors, UPS, Tesla, and Google will play a crucial role in shaping market sentiment and guiding investor strategies in the coming days.

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US Stock Futures Rise on Strong Earnings, While Oil Surges Amid Syria Strikes

In a week marked by turbulence in financial markets, US Stock futures experienced a rebound as Amazon.com Inc. and Intel Corp. reported robust earnings, dispelling some of the gloom that had settled after mixed reports from other big-tech companies. Meanwhile, crude oil prices surged following US strikes on Iran-linked facilities in Syria.

Scenario after the selloff

Nasdaq futures saw a notable 0.8% increase after a recent selloff had pushed the index to its lowest point since May. This decline also pushed the S&P 500 to the brink of a “correction,” with the index nearly 10% down from its peak in July. In premarket trading on Friday, Intel’s stock jumped by 7.8%, and Amazon’s shares were up by 4.8%.

The ongoing earnings season has proven to be a mixed bag, with investors penalizing companies that miss expectations more severely than they reward those that beat them. In the US, 78% of companies reporting earnings have beaten estimates, in contrast to 57% in Europe, according to strategists at JPMorgan Chase & Co. However, an increasing number of companies are signaling lower consumer demand and a deteriorating economic environment, even as data released on Thursday indicated that inflationary pressures in the US are receding, despite solid economic growth.

Solidifying Expectations

Investors are now closely watching a slew of reports, including the Federal Reserve’s preferred measure of underlying inflationary pressures, in order to solidify expectations that the central bank will pause its rate hikes in the upcoming week. Additionally, market participants will keep an eye on earnings announcements from major oil companies, such as Exxon Mobil Corp. and Chevron Corp.

Hebe Chen, an analyst at IG Markets in Melbourne, remarked on the resilience of US growth and earnings beats by some tech giants, stating that this has brought “long-awaited relief for stressed investors.” She also noted that as the end of the month approaches, investors are holding their breath for next week’s Federal Open Market Committee (FOMC) meeting, which is expected to set the tone for the remainder of the year.

Crude Oil Gains On Large US Stock Drawdown & Supply Concerns Due To Israel-Hamas Conflict

Stoxx Europe 600 index

In contrast to the positive sentiment in the US Stock Futures, the Stoxx Europe 600 index declined further as corporate earnings continued to disappoint. Notably, French pharmaceutical company Sanofi saw its stock drop by as much as 16% following an earnings miss and a downbeat outlook. UK lender NatWest Group Plc also faced a decline after reducing its margin guidance. Universal Music Group NV, the record label for artists like Taylor Swift, saw its shares decrease after falling short of some estimates. On a brighter note, energy majors saw gains as Brent crude oil prices surged by more than 1% to surpass $89 a barrel.

Bloomberg Data

Across Asia, shares in Hong Kong and Japan led the way in advancing, while Australian and South Korean stocks also traded in positive territory. Mainland Chinese shares saw a slight uptick after data on industrial companies’ profits showed growth, albeit at a slightly slower rate than in the previous period.

In the realm of currencies and bonds, Treasury yields rose slightly, and the US dollar remained steady. Swap contracts suggested a roughly one-in-three chance of another Federal Reserve rate hike in the current tightening cycle, according to data compiled by Bloomberg.

The Japanese yen showed stability after Tokyo inflation unexpectedly accelerated, indicating some consumer cost pressures. Japanese Finance Minister Shunichi Suzuki reiterated that officials are closely monitoring currency movements with a high sense of urgency.

Curious to learn more? Explore our articles on Enterprise Wired

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S&P 500 Hits Fourth Consecutive Record Close Amid Mixed Market Moves

On Monday, the S&P 500 continued its unprecedented record run, closing at an all-time high for the fourth straight session. The benchmark index edged up 0.06% to a new closing record of 5,570.73, while the NASDAQ Composite also marked a fresh closing high, rising 0.2%. However, the Dow Jones Industrial Average dipped slightly, falling 31 points or 0.1%.

Anticipation builds as major financial institutions like JPMorgan Chase (NYSE), Wells Fargo (NYSE), and Citigroup (NYSE) prepare to release their earnings reports this Friday. Additionally, this week will see earnings reports from PepsiCo (NASDAQ) and Delta Air Lines (NYSE), further stirring market interest.

In corporate news, Paramount Global (NASDAQ) saw a 5% decline in its stock after the announcement of a merger with Skydance Media, concluding months of speculation. Boeing (NYSE) closed marginally above the flatline following its agreement to plead guilty to a criminal fraud conspiracy charge. In contrast, Corning Incorporated (NYSE) surged 12% to fresh 52-week highs after raising its Q2 core sales forecast to $3.6 billion from $3.4 billion.

This mixed bag of market movements underscores the dynamic nature of the stock market as investors digest earnings reports and corporate developments. Keep an eye on this week's earnings releases and market reactions as they provide further insights into the health and direction of the market.