To The Moon

High Pressure Build Up Over US Market.

The week beginning 27 Oct 2024 will be a highly ‘“stressful” week and a test, for both US market and investors.

It is because both economic reports and quarterly earnings of US blue chips stocks will converge.

Will it be a case of (a) each influencing factor reinforces each other’s outcome and propel US market higher OR (b) each factor canceling out each other, leading US market to falter ?

The story will unfold over the course of the week.

Economic Reports.

Below are the more pertinent reports for the week:

• Consumer confidence report - Tue, 29 Oct 2024.

• Jobs opening & Labour turnover surveys (JOLTs) - Tue, 29 Oct 2024.

• ADP non-farm payroll - Wed, 30 Oct 2024.

• US Gross domestic product (GDP) preliminary for Q3 2024 - Wed, 30 Oct 2024.

• Personal consumption expenditure - Thu, 31 Oct 2024.

• US Weekly jobless claims - Thu, 31 Oct 2024

• US Non-Farm payroll - Fri, 01 Nov 2024

These will be the “last” set of reports :

• Before the US presidential election on Tue, 5 Nov 2024.

• The Fed will pour over before convening for the FOMC meeting on Nov 6-7.

No further socializing (for now) from the FOMC members during the blackout period of 26 Oct 2024 to 8 Nov 2024.

US October - Core PCE (YoY).

Looking at other YoY core inflation reports, that is data input for PCE derivation:

• Core CPI YoY rose by +0.1% when compared to August data of 3.2%.

• Core PPI YoY also rose by +0.2% when compared to revised August data of 2.6%.

Core PCE for September 2024 is expected to either (a) remain status quo at 2.7% or (b) ticked higher at 2.8%, versus August data of 2.7%. (see above)

US Non Farm Payroll (NFP).

US Non-farm payroll for September 2024

The other pivotal economic report will be the US Non Farm Payroll (NFP) due on Fri, 01 Nov 2024.

According to Reuters, economists expect the employment report to show that the economy created 140,000 jobs in October 2024.

Hartford Funds, Global investment strategist, Nanette Abuhoff commented that the report could be "messy" in the wake of two significant storms; focus on wages data, instead.

US weekly jobless claims has an inverse relationship with US Non-farm payroll:

• For October 2024, jobless claims have increased by +5,000 claims cumulatively, so far.

With the last weekly jobless claims due on Thu, 31 Oct 2024, it is still possible that October will register a marginal increase in claims, setting the stage for a NFP report that is either status quo or dipping marginally.

Bigwigs’ Quarterly Earnings.

The “Famous 5” - $Apple(AAPL)$ , $Microsoft(MSFT)$ , $Alphabet(GOOG)$ , $Amazon.com(AMZN)$ and $Meta Platforms, Inc.(META)$ all report this coming week. (see above)

Apart from them, other significant companies will also be reporting this week as well.

They too, will have their impact on both (a) tech sector and (b) broader market.

Who is reporting & When ?

• Alphabet - Tue, 29 Oct 2024 - before market.

• Visa Inc (V)$ - Tues, 29 Oct 2024 - after market.

• Advanced Micro Devices (AMD)$ - Tue, 29 Oct 2024 - after market.

• Microsoft Corporation (MSFT)$ - Wed, 30 Oct 2024 - after market.

• Meta Platform Inc (META)$ - Wed, 30 Oct 2024 - after market.

• Eli Lilly and Company (LLY)$ - Wed, 30 Oct 2024 - before market.

• Apple Inc - Thu, 31 Oct 2024 - after market.

• Amazon - Thu, 31 Oct 2024 - after market.

• Mastercard incorporated (MA)$ - Thu, 31 Oct 2024 - before market.

• Berkshire Hathaway (BRK.B)$ - Fri, 01 Nov 2024 -after market.

• ExxonMobil (XOM)$ - Fri, 01 Nov 2024 - before market.

• Chevron Corporation (CVX)$ - Fri, 01 Nov 2024 - before market.

These companies are the “bigger” players in their respective sectors.

Arguably all are near or flirting with various buy points or aggressive entries, and the looming earnings make that highly risky.

The Famous 5 boast a combined market valuation of > $12 trillion or 23% of the S&P 500 index weightage.

Market reaction/s to their results could sway broader indexes in coming days.

Separately, MSFT, GOOG, AMZN and META will have a huge influence on the entire artificial intelligence (AI) sector with their comments on AI monetization and capital spending plans.

Apple results will be key for iPhone chipmakers and other suppliers. Online advertising, e-commerce and more also will key off these tech titans.

Overall Consensus.

Wall Street is of the consensus that the guidance for growth from these companies does not paint a rosy picture.

Most foresee that these companies would exhibit a flattish growth as we move into the next quarter and maybe into next year.

It is becoming clear that investors are betting on the economy to slow down because of sustained high levels of interest rates.

The regular release of sectoral data reflecting a resilient economy is running counter to investors’ belief.

Alphabet Inc - Google.

This IT tech giant has a rather muted performance over the past 6 months, with stock price trading within a tight range, between $150 and $190.

Mostly, it finds support in the $160 band range. (see above)

Its biggest headwind to date is its digital advertising dominance with the tech giant contending with (i) competitive and (ii) regulatory pressures that threaten to stymie its growth trajectory.

The ongoing US antitrust trial is shining a spotlight on Google’s alleged monopolistic practices, especially around its search engine, and could significantly impact Alphabet’s business model moving forward.

A 9 Oct 2024 filing by the Department of Justice (DOJ) outlines potential options, including requiring Google to sell the Android operating system, Google Play Store, or Chrome browser.

As reported by Bloomberg, the DOJ is expected to share a more detailed proposal on 20 Nov 2024.

This will be the biggest dampener for Google.

Q2 2024 earnings Recap.

Below is company’s Q2 performance versus estimates from analysts polled by LSEG:

• Earnings: $1.89 a share vs $1.84 per share expected.

• Revenue: $84.74 billion vs $84.19 billion expected.

• Net income: $23.6 billion vs $18.4 billion (Q2 2023).

Revenue breakdown that Wall Street hawked over: (polled by StreetAccount)

(1) YouTube advertising revenue: $8.66 billion vs $8.93 billion.

• Digital video advertising is becoming more saturated, and Alphabet’s ability to retain its leadership in this segment is being tested by aggressive competition eg. Amazon’s Prime Video Ads earlier in 2024

(2) Google Cloud revenue: $10.35 billion vs. $10.20 billion.

• It was a bright spot in the quarter, with a +22% YoY growth.

• Accounting for 12.2% of total revenue in Q2.

• This comes amidst strong competition from Amazon Web Services (AWS) and Microsoft’s Azure.

(3) Traffic acquisition costs (TAC): $13.39 billion vs. $13.54 billion.

Q3 Earnings Forecasts:

According to FactSet:

• Revenue forecast: $86.4 billion, a +12.66% YoY gain from $76.69 billion in Q3 2023.

• Earnings per share forecast: $1.64 per share, a +5.81% YoY growth from $1.55 in Q3 2023.

Wall Street expects both Google Search and YouTube Ads to grow by +11.5% YoY, just below consensus expectations of 11.9% YoY.

Wedbush rates Google as follows:

• Maintains an “Outperform” rating.

• A price target of $205 per share, representing a +22.76% upside from Friday’s $166.99 closing.

My viewpoints : (mine only)

According to Fundstrat :

• 36% of S&P 500 companies (or 180 firms) have reported earnings results.

• Of those who have reported, 79% are beating profit estimates by a median of 6%.

• While 58% are beating revenue estimates by a median of 2%.

I think the “fear of missing out” (FOMO) syndrome will continue to “stress” AI players like MSFT, GOOG, AMZN and META.

They will continue to invest in AI, aiming to anchor themselves in their respective sweet spots within the AI-sphere.

They fully understand the principal of “the early bird catches the worm” and rather be “safe” (and just invest) than missing out “sorry”.

Will this, in turn have a direct knock-on effect on AI-suppliers like NVDA, TSM, ASML and AVGO ?

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