Tech, oil, and the Fed in the week ahead

Here’s what to expect [Click to view in browser](. Tech, oil, and the Fed in the week ahead - Big tech and oil earnings hit this week that are sure to move markets. - Tesla (TSLA) reports earnings after the bell today. Apple (AAPL), Google (GOOGL), and Microsoft (MSFT) all report earnings after the close tomorrow with Facebook (FB) following on Wednesday and Amazon (AMZN) on Thursday. - Chevron (CVX) and ExxonMobile (XOM) report Friday to close out the week. - The Fed meets for the final time until September. - Expect a potential inflection point in equity and bond markets. Monday’s top earnings announcements: - [Toymaker Hasbro (HAS) reported smoked Q2 estimates.]( - EPS of $1.05 vs. estimates of $0.47. - Revenue landed at $1.32 billion vs. $1.17 billion. - Revenue for consumer products jumped 33%, entertainment up 47%, and wizards (Dungeons & Dragons and Magic the gathering) doubled. - [Otis Worldwide (OTIS) came in slightly ahead of estimates.]( - EPS $0.79 in Q2 was $0.07 above estimates. - Revenue came in at $3.7 billion vs. $3.45 billion. - New Equipment sales increased 33.5% Y/Y to $1.73 billion, and orders were up 23.9% at constant currency with double-digit growth in the Americas and high teens growth in EMEA and Asia. - [Aerospace and defense company Lockheed Martin (LMT)]( - EPS $6.52 in Q2 missed estimates by $0.01. - Revenue beat estimates at $17.03 billion vs. $16.93 billion. - Lockheed’s cash from the operations halved to $1.27 billion compared to $2.18 billion a year ago, following a year of steady declines. Market moving stories you missed: - [Hong Kong Plunges on Tech Weakness]( - [FOMC Preview: Probably Too Soon for Hints on Tapering]( - [Is Lumber Sending Another Signal?]( - [How Bitcoin, Ethereum, Dogecoin Holders Are Saving On Federal Taxes Using A Loophole]( Navigating a tumultuous week Could this be the top? Is this week the one that finally brings stocks a much-needed dose of reality? That’s the scuttlebutt as we hit the most newsworthy week of the quarter. The question on everyone’s mind? [Iphone Anxiety GIF by Saint Hoax] What should I expect? Allow us to indulge you for a moment. Big tech requires big growth Our current markets aren’t healthy. How do we know? When we compare the S&P 500 (SPY) to the S&P 500 equal-weight ETF (RSP), we find that while the SPY and QQQ are making new highs, the RSP is not. Put more succinctly, our entire rally is coming off the back of a few key stocks. And many of those report this week. The top 10 holdings for the SPY are as follows: Only Microsoft (MSFT), Facebook (FB), and Google (GOOGL) are at all-time highs. Apple (AAPL) and Amazon (AMZN) are pretty close. Normally, folks invest in an index to diversify their holdings. But when the index concentrates on a few companies, that strategy becomes less effective. Since only a few companies are holding up the market, those same companies can bring it down. And there’s no better catalyst than earnings, particularly when share prices assume tremendous growth. None of these companies are particularly cheap when you review their price-to-earnings (P/E) ratios: - MSFT = 39.42x - FB = 24.17x - AAPL = 33.34x - AMZN = 69.59x - GOOGL = 33.64x As a point of reference, the S&P 500 is currently at 34.42x. To give you an idea of the revenue growth expectations, analysts predict Microsoft will jump 16% year-over-year, Amazon 29.4%, Apple 25%, Facebook 48.9%, and Google at 46.2%. Was the pandemic a bad year for these companies? Of course. And many of these estimates aren’t ridiculous considering how well they did in Q1 this year. But these are also tall orders to achieve, especially in light of ongoing supply chain issues. That’s why any deviation from expectations for the current quarter and guidance could rattle the entire market. But tech isn’t the only player up this week. Big oil’s big boost A key chunk of the S&P 500 is driven by oil companies. Did you know that Exxon Mobil was the largest company by market cap back in 2010? Oil prices rose from historic lows. Yet, it’s tough to see them getting much higher given the enormous supply boom in the U.S. and a fractious relationship within the OPEC alliance. Plus, they’re facing a secular market trend towards clean energy. So, while they might advance for months, the long-term trend is against them. However, the most important market event comes Wednesday at 2:00 pm EST. It’s not what they said but how they said it Two months between meetings can seem like an eternity. It makes the Fed’s statement Wednesday all that more important. No one expects them to raise interest rates. What worries bond traders is whether the Fed will signal an end to its massive bond-buying program. The central bank is coming under pressure as low interest rates are being spent more on share buybacks and dividends rather than capital projects. Plus, housing price appreciation is on pace for its fastest growth in over a decade. Markets are split on whether the Fed will taper this year. But make no mistake - if they describe when they plan to let off the gas it will inject heavy volatility in both the debt and equity markets. Our hot take Weeks like this one can and often do act as inflection points, but that doesn’t mean they always do. Astute investors set up a plan ahead of time, gaming out various scenarios. 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