Magnificent 7: Will They Lead US Market Recovery?
In this new week of 05 Aug 2024, as we braced ourselves for yet another week of possible corrections - it will be interesting to know which of the Magnificent Seven suffers the least & the most.
Without further ado, let’s jump in.
Magnificent 7 - Past 5 days performances
Below are performances of the “Magnificent Seven” stocks over last 5 trading days, presented in ascending order of percentage loss to stock price.
(1) $Meta Platforms, Inc.(META)$ : +1.87%
Yesterday (monday) Meta fell by -2.54%. However, based off 5 days performances, it actually had a gain of +1.87%.
Last Thu, 01 Aug 2024 when overall US market was faltering (on a spike in jobless claims) Meta shares (a) soared > +9% in early trading, after its Wed, 31 Jul 2024 better-than-expected Q2 earnings results and (b) [despite warning] it expects to see "significant" capital expenditures growth in 2025.
Looks like CEO Zuckerberg has largely been successful at convincing investors (institutions and retail) alike that Meta’s expenditure on artificial intelligence is non-negotiable.
(2) $Apple(AAPL)$ : -4.53%.
Apple’s Monday decline of -4.82% was definitely exacerbated by weekend Sunday news that Berkshire Hathaway has reduced its Apple stake by 50%.
Who would’ve thought that the Oracle of Omaha would execute such a drastic maneuver. Then again, who could be certain that it was Mr Buffett who called the shots and not one of his successors ?
Similarly, it was Apple’s quarterly earnings that helped see it through the current rough patch.
Apple’s Q3 2024 earnings satisfied investors' expectations at the top level with +5% YoY growth. Topping it off, the company had also set a Q4 record with $85.8 billion in revenue.
(3) Alphabet (GOOGL): -6.62%
On Mon, 05 Aug 2024, Alphabet saw a -4.61% drop in its stock price.
Compared to its 5-days performances, that registered a -6.62% loss, the inference is most of its decline took place on Monday.
Alphabet was amongst the first to report its earnings on Tue, 23 Jul 2024, did not fare well.
Q2 Earnings: (were credible, to me)
Revenue was up +14% YoY.
Even Google could that was not a big money spinner surpassed $10 billion in quarterly revenues.
For the first time, Google reported a $1 billion in operating profit.
The odd “flaw” was YouTube advertising revenue fell short (by -$0.27 billion or $270 million) of analysts’ consensus.
For that, it was off to the dungeons for slaughter. Unfair !
The latest lawsuit that Google lost over monopoly of “search” capability might just proved to be the real deal breaker. (see above)
(4) Microsoft (MSFT): -7.60%
On Mon, 05 Aug 2024, Microsoft experienced one of the smaller declines, at -3.27%.
Like Google, almost 50% of Microsoft decline came, fast & furious on Monday.
The company’s strong fundamentals and diversified portfolio helped cushion the impact of broader market volatility.
Again, like Google’s, its Q4 2024 earnings were not dismal (really !):
Earnings per share: $2.95 vs. $2.93 expected.
Revenue: $64.73 billion vs. $64.39 billion expected. It’’s a +15% YoY gain.
Net income: was $22.04 billion and a +9.76% YoY increase.
Despite handing in a good report card, investors looked past the better-than-expected earnings and revenue.
Instead, they dwelled on “disappointing” cloud revenue of $28.52 billion against a consensus of $28.68 billion.
(5) Nvidia (NVDA): -9.95%
On Monday, Nvidia saw a significant -6.36% drop, constituting > 50% of its past 5 days decline.
Despite strong demand for its GPUs, concerns over potential overvaluation and market saturation impacted the stock.
It did not help too that Nvidia’s new chip (Blackwell) delivery will be delayed by 3 months due to design flaw.
Analysts also noted recent negative catalysts weighing on the AI chip heavyweight.
Personally, I think the litmus test comes when Nvidia reports its quarterly earnings on 28 Aug 2024.
(6) $Amazon.com(AMZN)$: -12.87%
Amazon’s Monday slide was not the worst at -4.10%.
However, its past 5 days’ performances of -12.87% is the 2nd worst of the Magnificent 7.
Its fall from grace was mainly due to miss out on quarterly revenue:
Earnings: $1.26 per share vs. $1.03 per share expected.
Revenue: $147.98 billion vs. $148.56 billion expected.
Advertising revenue: $12.8 billion vs. $13 billion, according to StreetAccount was the other whammy.
Amazon’s revenue outlook for current quarter falling short of expectations, amped up the fear-index for the company.
Other headwinds from (a) slowing consumer spending and (b) increased competition in the cloud services market made investors nervous as well.
(7) $Tesla Motors(TSLA)$: -14.30%
Tesla was the other company that released its earnings on Tue, 23 Jul 2024.
Unlike Google whose earnings are not disappointing at all fronts, the same cannot be for the EV maker.
Shares in Tesla sank -12% after it reported a -45% slump in quarterly profits amid discounting by electric carmakers.
Mr CEO’s attempts to get investors to look anywhere but at the bottom line has also backfired. EVs are the only game in Tesla town, and the margins have been wrung out.
It’s “saving grace” of robotaxis has already dented its fanbase’s confidence when the original reveal slated for 08 Aug 2024 has been postponed to October, with Mr CEO citing some lame excuse.
Should it fail to showcase come October 2024, the EV maker is expected to fall “big” time.
My viewpoints: (mine only!)
After much bloodletting, a sense of calm seemed to have returned to US market, following Monday's sharp sell-off, that marked the end of a 3-week, $6.4 trillion retreat in global equities..
Pre-market indicators are shadows of a “possible” return.
But for how long?
Companies reporting quarterly earnings (this week) do not seemed to wield enough clout to lift the market out of the doldrum:
$Caterpillar, Inc(CAT)$ - Tue, 06 Aug 2024. AM.
$Novo Nordisk A/S(NVO)$ - Wed, 07 Aug 2024. AM.
$CVS Health Corporation(CVS)$ - Wed, 07 Aug 2024. AM.
$Eli Lilly and Company(LLY)$ - Thu, 08 Aug 2024. AM
$Gilead Sciences, Inc.(GILD)$ - Fri, 09 Aug 2024. PM.
Guestimation.
If US market is able to end Tuesday in the green zone, the road to recovery might just chugged along as long as quarterly earnings do not rock investors’ confidence.
Real test for market recovery will take place, the following week when US economic reports will either (a) ruffle more feathers or (b) set the market on a calm recovery.
If there is one stock that could really lift the US market, it would be Nvidia and it could happen on 28 Aug 2024.
As highlighted by D.A. Davidson, Senior software analyst - Gil Luria:
Nvidia has a window to sell to Microsoft, Amazon, Google, and Meta while those companies are hot and bothered about building out data centers as quickly as they can.
If Nvidia is missing out on some of those sales during that window, that does have an impact on Nvidia's value.
Also, that window will shut at some point especially when these “customers” become Ai-chip manufacturer themselves.
Can US economic reports ease US market onto the path of recovery next week?
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