July 23rd Market Overview

July 23rd Market Overview (no fluff)

Author

J.L. Bernstein
July 23, 2024

Happy Tuesday everyone, earning season is here!

I have a fun section at the bottom that would normally be reserved for premium subscribers but want to share that section with everyone.

Lets dig in…

Executive Summary

  1. Earnings Season: General Motors, General Electric, and Spotify show strong earnings, while UPS and NXPI post weaker-than-expected results.

  2. Magnificent 7: Nvidia faces potential sales control expansion in China; Apple benefits from India’s tax proposal.

  3. Sector Trends: Mixed performances across segments with notable developments in the automotive, tech, and e-commerce sectors.

Market Overview

  • A.M. Session: Early-morning trends indicate mixed sentiment as earnings season gains momentum.

  • Earnings: Varied performances from major players; key insights into institutional strategies during earnings season.

Key Market Drivers

  • Earnings Reports: Institutions de-risk by trimming positions before earnings, leading to potential buy opportunities at discounted prices…more on this at bottom.

  • Institutional Strategies: Institutions react to earnings rather than predict outcomes, often buying on pullbacks to key EMA levels for solid names. Again, ER section at bottom.

Stock Spotlight

Spotify (SPOT)

  • Earnings Beat: EPS of $1.33 surpassed estimates by 26%; revenue up 20% YoY at $3.81B.

  • User Growth: Monthly active users at 626M; premium subscribers up 12% YoY.

  • Guidance: Slightly disappointing with revenue expected at $4B next quarter, missing estimates.

General Motors (GM)

  • Strong Earnings: EPS of $3.06 beat estimates; revenue up 7% YoY at $47.97B.

  • EV Growth: EV deliveries up 40% YoY; plans to boost EV and battery manufacturing investment.

  • Guidance Raised: Significant beats and upgrades across key financial metrics.

General Electric (GE)

  • Mixed Results: EPS beat estimates but revenue missed. Operating profit and segment performance were strong.

  • Commercial Engines: Robust growth with a 21% profit increase.

  • Guidance: Raised for full year, anticipating high-single-digit revenue growth.

UPS

  • Weak Earnings: EPS missed estimates by 10%, with revenue and profits down across segments.

  • Guidance Cut: Slight downgrade in revenue expectations; profit margins revised lower.

NXPI

  • Aligned Earnings: EPS and revenue in line with estimates but guidance for next quarter missed.

  • Product Developments: Launch of new processor for vehicle integration shows potential.

Magnificent 7 Updates

  • Nvidia (NVDA): Potential sales control expansion in China could impact up to $12B in sales.

  • Apple (AAPL): Benefits from India’s proposal to cut import taxes, potentially saving $35-50M annually.

  • Google (GOOGL): Wiz ends acquisition deal, opting for IPO route instead.

  • Microsoft (MSFT): Piper Sandler increases PT to $485, reiterates overweight rating.

Other Notable Company News

  • Coinbase (COIN): Upgraded to Buy by Citi with PT raised to $345.

  • Qualcomm (QCOM): Baird adds as bullish fresh pick, raises PT to $250.

  • Toyota ™: Launched a 5.16B tender offer for shares.

  • Porsche: Cut 2024 outlook due to supply chain issues.

  • AMC: Refinancing deal to extend $2.45B of debt maturities.

Sector Watch

  • Automotive: Strong EV growth from GM; supply chain issues impact Porsche.

  • Technology: Positive sentiment for Apple due to tax benefits; mixed earnings from NXPI.

  • E-commerce: TikTok plans to launch in-app shopping platform in Spain and Ireland by October.

Bond Market

  • No bond-specific data today.

Policy Watch

  • US Policy: Growing concerns over tech curbs on China, impacting Nvidia significantly.

  • Indian Budget: Proposed changes in tax rates potentially benefiting large tech firms like Apple.

    Earnings Season Thoughts (and prayers lol)


    At the start of earnings season, this is a reminder to be responsible with your cash and gains. Here’s how to approach this volatile period:

    1. De-Risk and have Cash

    De-risk by trimming positions, size for 0, or use appropriate size in your pre-earnings plays. Institutions often trim positions before earnings as they are uncertain. Normally, before earnings season, institutions will do some kind of cash raise.

    Remember that cash raise is literally one of the best forms of hedging. You can then look for opportunities in the market. E.g. Last week, ASML fell to multi-month low. If you trimmed your ASML position, or if you don’t hold ASML, then other positions, heading into earnings, you can buy at these discounts.

    2. Approach Earnings Predictions Cautiously


    Institutions generally don’t buy on earnings predictions. Does this mean you shouldn’t? I’m not saying that. What I am saying though, is understand that pure earnings plays are a gamble. You don’t really know FOR SURE if GOOGL will smash it out the park or not, and even if they do whether the market will receive it well.

    As such:

    • Size small

    • If you buy options, buy longer durations so that you don’t get killed on weekly calls

    • Give yourself a damn chance that if the earnings don’t go exactly as you planned, you can still get out of the position at Break even

    • To be honest, you should just buy common shares rather than options

    • Furthermore, buy companies that you actually believe in. No point going long on Roblox earnings if you don’t like Roblox at all, just because they happen to be reporting. No. Buy the companies that if they sell off, you don’t mind holding them still, because you know that in 6m they’ll be back.

    3. Analyze Past Performance, But Don’t Rely On It

    Look at prior earnings performance, but understand that this is not a fool proof strategy. Just because the earnings popped and beat on the last 4 earnings, doesn’t mean it will this time. But it is a good sign.

    4. Watch Institutional Reactions


    Institutions generally are not proactive on earnings they are reactive.


    To do so, what they do is they wait for a sell off, then watch the monthly and weekly emas for entries. They will watch for pullback for instance to 21 weekly ema, and buy there for bounce. Or the 9 monthly ema and try to buy there for bounce. But again, in companies that they believe in. We are not institutions but understanding there buy and sell patterns is helpful. Follow the volume!


    Have a great week everyone, stay diligent!


    P.S. Any “clicks” to our sponsor allows me to drink good coffee in the morning. Please consider clicking through and checking out sponsors even if you don’t think you want to buy or subscribe from them :-)


    - JB

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Note: This newsletter is intended for informational purposes only.