First Quarter GDP Report Disappoints, but Google's and Microsoft's Earnings Provide a Nice Respite
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Today, a first quarter GDP report show showed US Economic growth had slowed and inflation increased above expectations (again). GDP advanced an annualized 1.6% rate, slower than the 2.5% consensus expectation.
And although the Q1 GDP report came in slower than expected, an inflation measure within the GDP report — Core PCE PRICES — came in higher than expected, pushing Treasury yields up and adding pressure on stocks; on top of the selling pressure that was previously spurred by Meta (META)’s Q2 revenue guidance reduction when it reported earnings Wednesday after-the-close.
This is yet another higher-than-expected inflation report that we’ve been receiving since the start of the year. Combine it with the lower-than-expected economic growth data, and it raises the specter of stagflation — slower/sluggish growth with higher inflation.
Treasury yields rallied up on the news, with the yield on the 10-year Treasury now over 4.7%, putting downward pressure on stocks.
The higher inflation data spurred buying in the metal mining stocks (gold, silver, copper), as you’d expect that it would. I suggested, previously, to err on the side of higher-than-expected inflation when determining your sector weightings.
The semiconductor sector was strong today despite the rally in Treasury yields. While Meta’s shareholders didn’t particularly like its announced increased spending plans on the “Metaverse” and AI, semiconductor stocks liked the AI-centric capital spending as they are a clear benefactor. AI general Nvidia was up 3.6% on the day, and the Semiconductor ETF (SMH) was up 1.9%.
It’s hard for me to get super bearish on the market when semiconductors and banks are doing fairly well. The semiconductor sector had also gotten a nice boost on Tuesday when large industrial and analog semiconductor maker (not AI chips!), Texas Instruments (TXN), forecasted improved conditions in those long-slumbering markets.
For future reference, if/when Texas Instruments breaks out of its 2.5-year base, it would be a strong positive for the Semiconductor ETF (SMH). It would indicate a broadening of semiconductor category participation beyond that of AI — which has fueled most of the SMH’s gains since its October 2022 bottom. I’ll write much more on that when we get to that bridge.
In yet more earnings news, both Microsoft (MSFT) and Google (GOOGL) reported earnings after the close, today, and both beat on revenues and earnings. GOOGL announced its first ever dividend, as well. Both traded up nicely in after-hours trading, particularly GOOGL with a 11% gain.
I’ll write more on GOOGL and MSFT earnings over the weekend. For now, their good/strong reports take a sizeable amount of downside risk out of the major indexes. At this time, I’m most interested in how they hold their after-hour gains during tomorrow’s regular trading hours, and the interplay between tech stocks and any further rise in Treasury yields. I don’t own either stock, but how they close on the day will tell us a lot about the resiliency of this market in the face of the steady climb in yields.
MSFT finished after-hour trading at $416, which is just a little above its intraday high on Wednesday, and a little above its 50 dma. MSFT was at risk of breaking down through key support before this evening’s earnings release.
GOOGL finished after-hour trading at $174, which will be a decisive new high. GOOGL shareholders want to see the stock close in the higher part of the day’s trading range, tomorrow.
I’ll elaborate more on the broader market over the weekend. As always, I’ll be posting frequent market commentary on WMI’s private Twitter (X) page.
Now, on to a new/updated long & short focus watchlist.
Focus Watchlist
I try to recommend trades that are timely and that a breakout/breakdown is likely to occur soon. If I take a stock or ETF off the focus watchlist, it may be because the trade needs more time to ripen, it ran away from us, or I’m no longer considering it at all.
Longs:
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