It was a hell of a week when it came to following big companies announcing their second quarter results, not to mention the Fed raising interest rates and GDP falling for the second time in a row…
But what a pleasant surprise it was to see the market maintain its uptrend through it all!
Tech stocks lack earnings estimates
Key tech stocks missed earnings estimates this week, but those misses had negligible effect on the market. On Wednesday livewe covered the reasons why Microsoft Corp. (MSFT) and Alphabet Inc. (GOOGL) did not meet expectations.
Meta Platforms Inc. (META)the company formerly known as Facebook, is still an online advertising juggernaut, but things keep getting worse for the company and its CEO, Mark Zuckerberg.
Combined with a tougher advertising market, the fact that Apple Inc. (AAPL) made it harder for Facebook and Instagram to track users across the internet, led to lower sales (for the first time) and lower-than-expected profits.
Is this a harbinger for other tech stocks? This is definitely not good news, but the bad news is primarily a Meta issue. Company management is distracted, and competitors like Bytedance (TikTok) are beating them at their core business.
META is not a buy at this point, but Thursday’s 6% drop is not an indicator that the whole sector is in trouble.
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Sectors to watch after the Fed announcement
The Fed raised the key rate by 0.75% on Wednesday afternoon as part of an expected hike, and stocks soared after the news conference. We are now at 2.25-2.5% interest, and the S&P has moved past last week’s highs. We don’t think this move signals a full bull market – it’s probably just a relief rally at the moment – but it’s definitely worth taking advantage of.
This boost has benefited some sectors more than others. Tech stocks are up 4.4% on Thursday; retail inventories are up 3.4%; and telecommunications stocks are also doing well. The rally will likely continue for these sectors, so now is a great time to buy value stocks. Check out Thursday’s livestream to learn more about our basic consumer choices.
In addition, Walmart Inc. (WMT), Target company (TGT)and Dollar General Corp. (CEO) also have adjustments to make after missing their revenue expectations. However, these companies to bring the aforementioned consumer staples, so they will generally be in the lead.
We still toe the line against investing in emerging markets – the interest rate just isn’t advantageous, nor is the continued strength of the dollar.
GDP = Recession?
The Bureau of Economic Analysis released its preliminary GDP (gross domestic product) report for the second quarter on Thursday, showing the economy contracted -0.9%.
Unless it is revised upwards next month, this is the second consecutive quarter that GDP has fallen. Traders generally assume that two-quarters of negative GDP signals an official recession, but the National Bureau of Economic Research may not agree yet.
However, what really matters is that traders and consumers to believe we are in a recession – what they are doing. What the numbers say is less critical than how people will behave. Our best advice right now is to beware of the uptrend of the market and pay attention to sectors and opportunities that offer the best chance of profiting.
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John Jagerson and Wade Hansen
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