The Best Stocks of Earnings Season

Every Friday we host a live 1:1 discussion via discord at 12pm EST. 

This gives you the prime opportunity to ask us any questions you have on the markets, the economy, crypto, and more!

If you want to listen to everything we broke down, just click the play button above.

 

Here are the 4 key things we went over:

• Why Meta crushed earnings this quarter

• How Microsoft is beating Amazon & Google

• What the slowdown in GDP means for a recession

• Where this latest banking crisis will go 

And if you're too busy to listen to the entire recording, below we included a compact summary of what went down.

To get all the juicy details, just listen to the entire recording.

And now, onto the summary👇

Overview:

Last week kicked off a solid bull run that was little affected by dimming economic trends.  Three of the biggest four tech players reported earnings, and at the very least two of them did very well. 

Meta's year of efficiency is in full swing and sent the markets soaring upward.

Microsoft's new dominance in cloud also fueled a lot of positive investment. The DJI had several days of multi-hundred point gains despite some less-than-rosy economic figures.

Even First Republic Bank potentially headed to FDIC receivership didn't ruin the vibes last week. 

Meanwhile, slowing GDP growth and sticky(ish) inflation has us worrying that we're about to grind our way through a tough period of stagflation, where economic growth is stalled but inflation keeps pace. 

Regardless, this market is all about winners and losers until the Fed stops raising rates. We got a lot of great data from this earnings season.

Let's dive into the details 👇

 

Tech Winners and Losers:

Meta was definitely the biggest winner coming out of earnings last week. 

Revenue at Meta increased by 3% YoY after 3-straight quarters of revenue declines. Furthermore, Daily Active Users (DAU) managed to increase as well.

More importantly, as ad spend recovers, Meta substantially increased their average revenue per consumer.

Basically, Meta is bringing people back to their platforms and squeezing more money out of them than ever before.

This ran completely counter to the expectation that TikTok was going to slowly grind Meta out of business. Reels is growing and people are coming back to the platform. With Meta's new AI tools, they're able to increase ad efficiency and potentially polish an algorithm that can rival what Tiktok has produced.

Meta is looking really unstoppable now and is forcing us to put together new price target projections for them. 

Meanwhile, Microsoft also managed solid growth in their cloud department, further stemming fears on our end that cloud spend was drying up. Azure revenue only grew 27% QoQ at Microsoft while it was growing 30% the quarter before.

We see the rate of that slowdown decreasing and therefore Azure growth is more stabilizing than anything.

This stabilization was something our analysts and the rest of the market anticipated. Combined with good news from their AI efforts, Microsoft was also a leading winner headed into the end of the week. 

There were lots of other great trends. Some brands, like Chipotle, were able to maintain growth despite rising prices. Big Pharma all reported on Thursday and most of our biggest players saw gains despite huge revenue losses on waning COVID spend. The market is wild in how it's shifting into a post-covid mentality. 

The big loser this week was Amazon, as they simply haven't cut costs enough to justify slowing growth on their end. However, mid-week Amazon announced more layoffs that were hitting divisions like AWS, so we anticipate a much rosier response to next quarter's earnings report. 

The market loves to hear about this year of efficiency, and this week Apple is going to be the major player who dominates the headlines.

We're really excited to see how they've controlled costs and if they have anything AI-related up their sleeve.

 

The Slowing GDP:

But it's also pretty wild because we also saw economic growth slow last week and the market just didn't seem to care all that much what with the fun tech earnings going on.  

U.S. Gross Domestic Product (GDP), the primary measure we use for economic growth, grew 1.1% in the last 3 months.

That’s a huge decline from Q4’s 2.6% figure. We aren’t quite in a recession yet, but the numbers are suggesting we sure are on the way to one.

It takes two straight quarters (or more) of a shrinking GDP to fully declare a recession.

While last year’s 6 months of decline didn’t quite check all the boxes, we still could be headed for one this year. This is a very complicated situation to predict, but let’s give you some metrics to watch:

1. First if next week’s CPI print comes in lower than expected, that’s a strong sign that what the Fed is doing is working and they can potentially stop pumping the brakes in the next few months.
2. Meanwhile, back in 2019, GDP grew quarterly in the mid-2 % range, so if we see July’s GDP figure move back towards 2%, we’ll get a lot more confident that this was the true bottom of this Fed slowdown.

All-in-all though, it's simply too soon to say where this market is headed. The name of the game right now, as always, appears to be volatility.

It's fun when we're in the more positive swing of that volatile cycle, but it can turn on a dime real quick. Again, next week's CPI print shows a solid slowdown, we're going to stay in bull territory for a bit.

 

Wrapping This Up:

As always, earnings season is going to be mixed in a market this heavily influenced by inflation and interest rates. We're keeping an even hand at the till here and watching for more long-term trends. 

It's great being in the bullish phase of this cycle, but we could be in a long spiral downward still. We'll keep you updated as the market develops.