Big-Tech’s Performance
FOMC meeting presented a hawkish dove. Rate cut expectation in March has been significantly reduced. Although Powell's proactive dampening may not be entirely cold, the market is also not overly reactive.
Being thoroughly scrutinized and burdened with high expectations, it has become difficult for major tech companies to surprise investors. If they do exceed expectations, there is a possibility of obtaining additional risk premium.
As of the close on February 1st, the best performers among major tech companies in the past week were $Tesla Motors(TSLA)$ with a reversal of +3.41%, followed by $NVIDIA Corp(NVDA)$ with +2.29%, $Amazon.com(AMZN)$ with +0.97%, $Meta Platforms, Inc.(META)$ with +0.41%, $Microsoft(MSFT)$ with -0.27%, $Apple(AAPL)$ with -3.76%, and $Alphabet(GOOGL)$ with -7.05%. Among them, $Alphabet(GOOG)$ and MSFT reported their performance after earnings, with AAPL reporting -2.9% after hours, AMZN +7.11%, and META +15.21%.
Big-Tech’s Key Strategy
$Netflix(NFLX)$ started the tech company earnings season on a good note last week, and its stock price has risen by more than 20% since then. For a "surprise surge" to occur, at least one of the following three conditions must be met:
- "Significantly exceeding expectations" (at least a 10% deviation) in current performance;
- At least one important business and its sub-industry are still in an upward trend;
- Strong guidance improvement, with healthy and excellent guidance for the next quarter or fiscal year.
According to this standard, META and AMZN among the major tech companies reporting earnings this week have met the criteria. Of course, the intensity of the surprise also determines the post-earnings performance.
Obviously, MSFT and GOOGL, which reported earnings on January 30th, did not have too many amazing results. For MSFT, investors had already priced in high expectations for AI. With OpenAI's support, the Q4 performance and Q1 guidance were within investors' expectations. Although GOOGL's cloud business growth has returned, flaws in advertising have made investors more cautious.
AAPL, which reported earnings on February 1st, also did not shine. The revenue from iPhone sales was mostly due to price increases, but investors had higher hopes for service revenue, which fell slightly short. AMZN showed stronger-than-expected e-commerce performance, reigniting hope for the tech giant's counterattack. META, on the other hand, demonstrated a "surprise improvement in guidance," with advertising efficiency helping it regain market share, showing resilience, and being able to maintain a strong position in 2024.
We summarized the one-day post-earnings stock price performance over the past 5 years, and except for AMZN, META, and TSLA, the median was positive for all. Among them, MSFT had the lowest volatility, META had high volatility, even surpassing NVDA and TSLA.
Therefore, META is the most suitable major tech stock for "earnings season trading." Of course, based on post-earnings performance, the closing price on the first day often further reflects the trend at the opening.
TSLA has experienced a significant drop after three consecutive quarters of financial reports, while AMZN has seen a continuous rise over three quarters, and META has also experienced a strong rebound since 2022, with three out of the last four quarters showing double-digit growth.
Big-Tech Weekly Options Watch
TSLA is probably the most concerning stock for options players, as it has seen a large drop after the financial report and the outlook is not strong. Despite continuous bullish positions like ARK adding to their holdings, the volatility remains high, making the options game very intense.
A large volume of open interest in options with expiration in February, ranging from $160 to $250, and both bullish and bearish sides are still hoping for a turnaround. The central range for both Call and PUT options is around $200, and the bullish side may still be hoping for a rebound to $200.
Note that a $200 PUT option is considered at a moderate price level compared to a $185 stock price, meaning that the buyers of PUT options are still bearish.
On the other hand, for META options before the financial report, there is a large open interest in the $370 CALL options (possibly indicating that major institutions are placing bets), and the $400-450 range of CALL options is still very concentrated. This suggests that the options market is actually quite bullish on this financial report, considering that the stock price was below $400 before the report.
Big-Tech Portfolio
The "Magnificent Seven" form an investment portfolio ("TANMAMG" combination) with equal weights and quarterly readjustment of weights. The backtesting results show that since 2015, the performance has far exceeded the S&P 500, with a total return of 1526.55%, compared to 179.96% for $SPDR S&P 500 ETF Trust(SPY)$ during the same period.
The year-to-date return is 2.82% for the combination and 2.92% for SPY, although this does not take into account the volatility after the financial reports of META and AMZN.
Over the past year, the combination has a Sharpe ratio of 3.8, while SPY has a ratio of 1.5.
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