Wall Street stumbled on tech earnings pessimism

On Tuesday, Wall Street Futures jumped on easing of Gaza war tensions, soft landing (after upbeat PMI data along with signs of inflation easing), and the Fed’s pause/pivot optimism coupled with hopes of blockbuster earnings from big four tech majors and Chinese stimulus. But late Tuesday, after the US cash market close, Wall Street Futures stumbled to some extent as Alphabet slips on a mixed report card (subdued cloud revenue), but Microsoft rose on an upbeat report card (earnings and guidance beat). Meta slips after being sued by California and a group of states over claims of harmful youth marketing.

Highlights of report card:

Visa Q4CY23 Earnings:

Adj. EPS $2.33 vs est. $2.24

Net Rev. $8.6B vs est. $8.56B

Eps $2.27 vs $1.86 (y/y)

Total Visa processed transactions $56.0B vs Est. $55.75B

Authorized a new $25.0b multi-year share buyback program

Alphabet Q3CY23 Earnings:

EPS $1.55 vs Est. $1.45

Rev. $76.69B vs Est. $75.54B

Google services Rev. $67.99B vs est. $66.89B

Google Ad Rev. $59.65B vs, est. $58.94B

YouTube Ads Rev. $7.95B vs est. $7.8B

Google Cloud Rev. $8.41B vs est. $8.6B

Google other Rev. $8.34B vs est. $7.94B

Operating Income $21.34B vs est. $21.44B

Microsoft Q1FY24 Earnings:

EPS $2.99 vs est. $2.24

Rev. $56.5B vs est. $54.54B

Productivity Rev $18.59B vs est. $18.29B

Intelligent cloud Rev. $24.26B vs est. $23.61B

More personal computing Rev. $13.67B vs Est. $12.89B

Returned $9.1B to shareholders

Boeing Q3CY2023 Earnings:

Core EPS (loss) -$3.26 vs est. -$2.95

Rev. $18.10B vs est. $18.16B

Adj. free cash flow (FCF) -$310M vs, est. negative $252.6M

Operating cash flow $22M vs est. $448.2M

Sees FY free cash flow $3.0B to $5.0B

Now expects to deliver 375-400 737 airplanes

On Wednesday Wall Street Futures stumbled on mixed/subdued report cards by tech majors and also Boeing. Also Chinese real estate firm Country Garden defaulted on its overseas (USD) bond. But Wall Street Futures was also supported by HK stimulus (tax cuts) for stock trading and also reports of tax cut stimulus from Japan (from June 24).

To restore HK's reputation as An Asian center for finance and IPO, officials there are also reversing an emergency rise in the stamp tax on stock sales. In a speech Wednesday, Hong Kong Chief Executive Lee described the strategy and unveiled plans to reduce the tax on non-residents purchasing homes from 15% to 7.5% as well as halve the tax on locals purchasing second homes. Also, China’s President Xi said: “We are willing to manage differences with the US and work together to respond to global challenges”. China decided to raise additional public debt by around $137B and target a 3.8% fiscal deficit instead of an earlier target of 3.0% to achieve a 2023 real GDP growth target of +5.0% at least.

On Wednesday, China's Vice Finance Minister said:

·         Govt. debt level is still within a reasonable range despite higher debt

·         The usage of new sovereign bonds can drive up domestic demand actively and further consolidate economic recovery

On Wednesday, Wall Street Futures also got some boost, while Gold slipped briefly after a WSJ report that Israel agreed to delay the Gaza invasion so the U.S. could rush missile defenses to the region. But all reversed soon after another report by Hamas fighters trained in Iran before the attacks. Also, Russian Defence Minister Shoigu: “We are to start training on nuclear strike and Russia has tested its ability to launch a massive nuclear retaliatory strike”.

On Wednesday, U.S. President Biden also warned Iran against attacking U.S. military bases in Syria and Iraq through proxies. Earlier Wednesday, the Iranian supreme leader Khamenei accused the U.S. of orchestrating Israel's attacks on Gaza, calling the U.S. a ‘definite accomplice of criminals’.

Biden also reiterated U.S. support for the state Palestine-Israel solution and urged Israel to show restraint:

·         The U.S. will be forced to respond in case the attacks on American troops currently positioned in the Middle East continue

·         We have had troops in the region since 9/11 to go after ISIS which has nothing to do with Israel at all. My warning to the Ayatollah (Iran's Supreme Leader Ayatollah Ali Khamenei) was, that if he continues to move against those troops, we will respond. It has nothing to do with Israel

·         U.S. supports two-state solution after Middle East crisis

·         The only way forward after the ongoing crisis in the Middle East is by following the two-state solution, which would allow both Israelis and Palestinians to live with dignity and peace

·         There is no going back to the status quo as it stood on October 6, which means ensuring Hamas can no longer terrorize Israel and use Palestinians as human shields

·         The militant group (Hamas) does not represent the majority of the Palestinian people in the Gaza Strip

·         But continued attacks on Palestinians in the West Bank by Israeli settlers are alarming--- these actions only pour gasoline on fire--It has to stop now

On the other side, Israel’s PM Netanyahu said:

·         All Hamas militants are doomed both inside and outside of the Gaza Strip, outlining two main goals of the raging war, which include the eradication of the Palestinian militant group and the return of captives

·         The exact timing of the ground invasion of the Gaza Strip will be reached by consensus but preparations are ongoing

·         Netanyahu also called on Gaza civilians to move to the southern part of the enclave and disclosed that Israel is advising its people to carry arms—as Hamas is ISIS

·         Everyone will have to give answers for what happened on October 7, including me, after the war will win together

Market wrap:

On Wednesday Wall Street Futures stumbled on subdued/mixed report cards, higher bond yields and Gaza war trajectory uncertainty. Blue chip DJ-30 stumbled almost 200 points from the session high and closed around 105 points lower, while tech-heavy NQ-100 slid -2.4% and broader SPX-500 tumbled -1.4%. Wall Street was dragged by communication services, techs, consumer discretionary, real estate, industrials, materials, healthcare, banks & financials, and energy, while boosted by utilities and consumer staples.

Among stocks, Alphabet tumbled most in a year after missing cloud revenue expectations; Texas Instrument stumbled on subdued revenue. Boeing also slid after the subdued report card. Meta slipped ahead of its quarterly release after the market closed. But, Microsoft soared after the company's revenue, earnings and guidance topped estimates. IBM which is also scheduled for release after the closing bell was little changed. DJ-30 was also dragged by Intel, and Apple, while boosted by Traveler, Walgreens Boots, United Health, Visa and Coca-Cola. In late trading, Meta and IBM rallied on upbeat report cards (apparently).

Technical trading levels: DJ-30, NQ-100 Future, and Gold

Whatever the narrative, technically Dow Future (33179) now has to sustain above 33000-32900 levels for a rebound to 33400/33550-33700/33950 and rally further to 34050/34150-34325/34600 and 35000/35150-35350/35850; otherwise sustaining below 32850, may fall to 32750/32600-32500/400 and further to 32150/31700-31595/31000 and even 29300-28600 in the coming days. Technically, 33000-32900 levels should provide good buying support (depending upon Israel-Gaza news flow). If Israel launches a big ground invasion in Gaza, resulting in wider Middle East conflict, then Dow Jones may break 32900 levels and vice-versa.

Similarly, NQ-100 Future (14465) now has to sustain over 14600-400 levels for a rebound to 14750/900-15150/15350 and may further rally to 15475/15655-15775/16100 in the coming days; otherwise, sustaining below 14350 may further fall to 14250-14175 and 14000/13890-13650/13125 in the coming days.

Gold (XAU/USD: 1979) now has to sustain above 1990 for any further rally to 2005/2020-2035/2055 and 2075/2085 levels; otherwise, sustaining below 1985, may again fall to 1975/1965-1955/1940 and further to 1920/1910-1900/1895 and 1885/80 -1870/60-50/40 and 1825/1810-1798*/1770 level in the coming days.