Amazon Beats, Starbucks Misses, Fed Scheduled To Deliver

Key Takeaways

• Artificial Intelligence Boosts Amazon Results
• Consumer Spending Could Be Slowing
• Fed Decision On Interest Rates Looms

Stocks, which were down all-day Tuesday, saw accelerated selling into the close. When the day finally came to an end, the S&P 500 was down 1.6% and the Nasdaq Composite was off 2%. The selloff was widespread with all eleven sectors of the S&P down on the day. For the month, the S&P 500 was down 4.2%, its worst month since September. The Nasdaq Composite dropped 4.4%.

The market is struggling with a tug-of-war between economic data, which continues showing a stubborn level of inflation that makes an interest rate cut unlikely anytime soon, and earnings. And we have a lot of both this week.

Later this morning, we’ll get the latest JOLTs report, which will show the number of job openings. Then this afternoon, the Federal Reserve Open Market Committee (FOMC) will conclude its meeting and announce a decision on interest rates. The decision is almost as well kept a secret that the Bears were going to draft Caleb Williams. Therefore, the decision itself to leave rates untouched is a foregone conclusion. What isn’t as clear is if we will see any rate cuts at all this year. According to the CME, it’s unlikely we’ll see an interest rate cut until at least September. That is why the press conference by Jerome Powell, following the decision on rates, will likely be the story of the day.

On the earnings front, after the close Tuesday, Advanced Micro Devices
Advanced Micro Devices
reported earnings that beat estimates. The company offered forward guidance for the rest of the year that was in line with expectations. That didn’t seem to impress the street, sending the stock down 7% after hours.

Shares of Amazon
Amazon
traded higher by 1% late Tuesday after the company beat expectations and reported net operating margins of 10%, a company record. The company reported a surge in its cloud-computing unit, resulting from AI excitement. Amazon has also benefited from cost cutting efforts. Since 2022, the company has eliminated 27 thousand jobs.

We also heard from Starbucks
Starbucks
who reported disappointing numbers. Same store sales fell by a surprising 4%. That led the company to cut its 2024 revenue and earnings outlook. In after-hours trading, shares of Starbucks fell by 12%. One thing that stands out here is how the company talked about weaker consumer spending. We heard a similar cautious tone from McDonalds and even Amazon, when it came to retail spending. Retail companies begin reporting next week and I’ll be very curious to hear what they have to say.

Finally, Pinterest
Pinterest
shares are higher by 18% in premarket after reporting earnings. Pinterest revenues grew by 23% to $740 million, while earnings came in at an adjusted $0.20 compared with expectations of $0.13. The company also offered a forecast for the second quarter that exceeds analyst expectations.

Thus far, with over 50% of S&P 500 companies having reported, first quarter earnings are on pace to grow 3.9% according to FactSet. That compares with first quarter of 2023 where earnings fell 2.2%. We still have a number of companies reporting this week, including Qualcomm
Qualcomm
after the close today. Then tomorrow, Apple
Apple
will release their earnings.

One other company in the news on Tuesday was Tesla
Tesla
. The company surprisingly announced it was cutting all 500 jobs from its Supercharger team. One of the drawbacks to electric vehicle is the concern over being able to find a place to charge while traveling long distances. Tesla recently entered deals with Ford, General Motors
General Motors
and other car manufacturers that would allow electric vehicles made by those manufacturers use of Tesla charging stations. However, if Tesla plans to cut back on the number of stations available, it could reintroduce confusion caused by different charging protocols for different cars. Shares of Tesla fell over 5.5% on Tuesday.

One interesting note and contributor to Tuesday’s selling was weakness in companies that reported earnings last week. Shares of Google
Google
parent Alphabet were down over 2% Tuesday. Microsoft
Microsoft
was also down 3.2%. Both companies have seen the majority of their respective gains made following earnings evaporate. Shares of Alphabet had traded as high as $174.71 after earnings. That stock has since fallen nearly 7%. Meantime, Microsoft shares, which traded up to $413 following earnings, have subsequently dropped close to 6%. So, I am keeping a close eye on not just how stocks perform in the immediate aftermath of earnings, but how they trade in the days following.

As mentioned above, there are plenty of earnings reports due out the remainder of this week. We also have more economic data as well. On Friday, the latest employment report will be released. It is expected that 210 thousand new jobs were created in April and the unemployment rate is forecast to come in at 3.8%. So, while today’s Fed decision and subsequent press conference will garner significant attention, the spotlight will quickly turn to speculation over Friday’s report and how it might change interest rate projections.

For today, I’m watching to see if the bears can continue the momentum they initiated Tuesday. There are multiple potential catalysts these next few days that could lead to choppy trading. The VIX is hovering around 16 heading into trading today, which is still a relatively low number. However, I’ll be keeping my eye on that as the day progresses. As always, I would stick with your investing plan and long term objectives.

tastytrade, Inc. commentary for educational purposes only. This content is not, nor is intended to be, trading or investment advice or a recommendation that any investment product or strategy is suitable for any person.

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