Google Is the Star of the Magnificent Seven Earnings Show
Three of four Mag 7 reporters are red after hours, but Alphabet's blowout EPS and a hawkish Fed set up a bumpy, but tradeable tape.
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Investors have been anxiously awaiting four reports from Magnificent Seven (MAGS) names after the close on Wednesday and so far it's a mixed bag.
Alphabet (GOOGL) is the star of the show with an absolute blowout EPS of $5.11 versus consensus estimates of $2.48. Revenues rose 21.8% year over year to $109.9 billion vs. the $106.98 billion estimate. The stock was up very strongly at first but is now drifting lower and is only up 2% or so, as I write.
Meta Platforms (META) disappointed and is trading down around 7% and back under its 50-day simple moving average. Microsoft (MSFT) and Amazon (AMZN) posted good numbers but are being hit with a "sell-the-news" reaction so far.
This is the action I've been anticipating since these stocks have run up so much in recent weeks. These are not bad reports, but the hurdle was just too high to bring in new buying energy.
Breadth Was the Real Story Wednesday
The Nasdaq 100 (QQQ) is now red after a gain of more than 0.5% during the regular session. One interesting issue Wednesday was noted by Jason Goepfert. While the QQQ closed up by more than 0.5%, fewer than 29% of the index's stocks advanced. This has not happened in at least 28 years. In other words, breadth was very poor but a few big cap names covered up the weakness.
A More Hawkish Fed Adds to the Pressure
In addition to earnings, we had a slightly more hawkish Fed than anticipated, with three members going on record that they oppose any guidance suggesting future easing. The market is expecting no action from the Fed in either direction for quite a while, and there is concern about cost-push inflation building if the oil market is not normalized fairly soon.
Rotation Is the Best-Case Scenario
The big question now is how the market will deal with these earnings reports. The best-case scenario is some rotational action out of the Mag 7 names and into other areas of the market. There are plenty of good reports and many stocks that are not extended, so there isn't any reason for a collapse if the Mag 7 lose some momentum.
As I've noted, I raised my cash levels substantially and I will now put more focus on finding good opportunities that may arise as we see more pressure. I'm not concerned about a major change in market trend, but it's going to be bumpy. Bumpy may be good for trading.
Have a good evening. I'll see you Thursday.
Related: Potholes and Potential Landmines to Watch on Wall Street
At the time of publication, Rev Shark was long GOOGL.
