For Now, We're on the Sidelines With Big Tech

The latest rally that started last Wednesday continued to gain steam through yesterday, however concerns over Big Tech earnings are weighing on equities this morning.

Results from AAP holdings Alphabet GOOGL and Microsoft (MSFT) confirmed tightening corporate purse strings, dollar headwinds, and falling device demand. Since we trimmed back the positions in mid-September and downgraded GOOGL shares to a Two rating, we've been on the sidelines with both stocks given concerns over several of those headwinds.

On a positive note, cloud demand buoyed both companies' quarterly results and are expected to remain positive drivers for their current quarters despite headwinds in their other businesses. With more technology companies set to report their quarterly results this week, including Meta Platforms (META) , Apple (AAPL) , and Amazon (AMZN) , a clearer picture for cloud, advertising spend, device demand, and currency headwinds should emerge. As that picture forms, we'll have a much better sense as to which companies are faring better than others, particular on the cloud and advertising spending fronts. We'll continue to be on the sidelines with Big Tech for now.

As we navigate the coming wave of quarterly results, reports of new Covid outbreaks in Asia are emerging, including at a key Foxconn iPhone factory as well as in Macau.

And the debate over the size of the Fed's December monetary policy action continues. However, we view fresh waves of price increases from Chipotle (CMG) and others as well as prospects for additional ones from the likes of Coca-Cola (KO) in the coming months could keep the Fed on a rate hiking path longer than some are currently thinking.

We'll be digging into Kraft Heinz's (KHC) results to see if it joins the list of companies targeting additional pricing action. As we see it, however, interest rates will be significantly higher entering 2023 vs. levels at the start of 2022 and questions remain as to whether that is fully baked into market expectations for earnings and the economy.

Checking in on retail inventories, the September Advanced Retail Inventory report was published at 8:30 am ET and it showed retail inventories continued to tick higher month over month. Existing September, retail inventories were at $744 billion, up 22.2% year over year. This suggests retailer inventories remain bloated despite the recent use of sales and discounts to help reduce, signaling that consumers continue to be rather selective with their spending as they contend with inflation sapping their purchasing power.

We continue to see Amazon (AMZN) and Costco (COST) benefitting from that and we are on the hunt for retailers whose business model capitalizes on excessive retailer inventories.

We'll have more in depth thoughts to share with members on quarterly results from Alphabet, Microsoft, and Chipotle.

Action Alerts PLUS is Long GOOGL, MSFT, AAPL, AMZN, COST, CMG.