The slowing growth and stubborn inflation picture emerging in the U.S. economy may not be quite a nightmare scenario for the Federal Reserve, but it at least could make for some restless sleep.
One crucial factor influencing market dynamics is the stance of the Fed, particularly regarding interest rates. When the Fed opt against cutting interest rates due to controlled inflation and robust earnings growth, it prompts a reassessment among investors. This recalibration reflects a delicate balancing act between monetary policy decisions and their impact on market sentiment and performance.
The US Central bank added that it does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward two per cent. This indicates that rate cuts are not on cards anytime soon, until inflation cools down and moves sustainably towards the two percent target set by the Fed.
As the first-quarter earnings season draws to a close, the majority of S&P 500 companies have already unveiled their financial results. Impressively, a significant proportion, around 77%, have exceeded earnings expectations, while 61% have outperformed revenue estimates. These figures suggest a resilient corporate landscape, despite ongoing economic uncertainties.
From a broader perspective, the blended growth rate indicates a robust 6.9% year-over-year earnings growth and a respectable 3.6% revenue growth rate. We do not think the Fed will and need to cut rate amid this background.
Apple: Slightly positive as buy back to boost confidence
Apple's shares surged during extended trading on Thursday following the announcement of its fiscal second-quarter earnings, which surpassed expectations. Adding to the positive news, the tech giant revealed an expanded stock buyback program that grabbed the attention of investors.
The announcement detailed that Apple's board had greenlit a whopping $110 billion in share repurchases, marking a significant 22% uptick from last year's authorization of $90 billion. This move not only underscores Apple's confidence in its financial position but also represents a historic milestone in terms of buyback programs.
In fact, this $110 billion authorization stands as the largest buyback in history, surpassing even Apple's previous record-setting repurchase initiatives. Such a substantial commitment to buy back its own shares indicates Apple's belief in the value of its stock and its commitment to returning value to shareholders.
This announcement comes amidst a backdrop of strong performance for Apple, driven by robust demand for its products and services, particularly the iPhone lineup. Despite global economic uncertainties, Apple's ability to consistently deliver impressive financial results and its strategic focus on returning capital to shareholders continue to position it as a leader in the tech industry.
AAPL (Daily). Fundamental effect helped Apple to breakout Resistance level in 178.30. A short correction to close the gap is needed to boost the Bullish period.
Tesla: Slightly bearish as valuation remains bearish
Tesla's recent earnings report, which fell short of investor expectations, the company's share price continues to be perceived as very expensive. This sentiment reflects broader concerns regarding Tesla's fundamentals and its competitive position in the electric vehicle market.
One key issue highlighted by critics is Tesla's valuation relative to its financial performance. Despite its pioneering role in the EV industry and strong brand recognition, Tesla's earnings report may have failed to reassure investors about its ability to sustainably generate profits amidst increasing competition.
The company faces a growing number of competitors entering the EV market, offering consumers a wider range of options to choose from. This heightened competition poses a challenge to Tesla's market dominance and raises questions about its long-term growth prospects.
Additionally, concerns about Tesla's fundamentals may stem from various factors, including production challenges, supply chain issues, and regulatory uncertainties. While Tesla has achieved significant milestones in terms of vehicle production and sales, ongoing operational challenges and the need for continuous investment in research and development to stay ahead in the EV race may weigh on its financial performance.
While Tesla's share price remains high, concerns persist regarding its fundamentals and competitive position in the EV market. As the EV landscape evolves and competition intensifies, Tesla will need to address these challenges to maintain its market leadership and justify its valuation to investors.
TSLA (Weekly). Major downturn in Tesla happening in wide timeframe. Technically, Bearish sentiment will continue for the next few months.
Alphabet: Slightly bullish on AI
Alphabet, Google's parent company, indeed possesses a significant distribution and technology advantage over its competitors, setting it apart as a dominant force in the tech industry. This advantage stems from Alphabet's vast ecosystem of products and services, ranging from its core search engine to its cloud computing, advertising, and hardware divisions.
One of Alphabet's key strengths lies in its extensive user base and global reach. With billions of users utilizing Google's search engine, Gmail, YouTube, and other services on a daily basis, Alphabet has unparalleled access to data, which it leverages to improve user experiences and deliver targeted advertising. This extensive reach not only solidifies Alphabet's market position but also provides a foundation for innovation and expansion into new markets.
Alphabet's investment in artificial intelligence technologies further enhances its competitive edge. By integrating AI across its product suite, Alphabet can improve efficiency, personalize user experiences, and drive innovation. For example, AI-powered features like Google Assistant, Google Photos, and predictive search algorithms demonstrate Alphabet's commitment to leveraging AI to enhance its products and services.
GOOGL (Daily). The constant rise over the last 2 months makes Alphabet's charts look smooth. Wait for small correction to close the gap and aim for the Resistance level in 173.65.
Fullerton Markets Research Team
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