Earnings And AI Continue Boosting Stocks

Key Takeaways

• AI News Boosts Microsoft
• Goldman Sachs Misses
• Earnings Season Heating Up With Netflix and Tesla Reporting

Can’t stop, won’t stop. That’s probably the best way to sum up this market at the moment. On Tuesday, the S&P 500 added 0.7% and the Nasdaq Composite increased 0.8% to what’s already been a strong year. Individual company news, better than expected earnings and signs inflation remains stable all helped to propel gains. We’ll see if some of the more common household names, scheduled to report earnings, can keep the momentum going.

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Artificial Intelligence, or AI if you’re one of the cool kids, continues to be the hot topic. On Tuesday, Microsoft
MSFT
announced plans to offer new AI products for a fee of $30 per month to consumers and businesses, which is more than double what it charges for its least expensive version of Office 365. The company also announced a partnership with Facebook parent, Meta, to release a new version of Meta’s AI language dubbed, Llama 2. That news sent shares of Microsoft up 4%, adding $100 billion in market cap. Other AI-related stocks also traded higher in sympathy with shares of Nvidia jumping over 2%.

On the earnings front, a little over 7% of the S&P 500 have reported with approximately 80% of those companies beating on earnings estimates. Heading into reporting season, profits were expected to fall 7.5%, but that has since improved to just a 7% decline. One company that didn’t beat on earnings was Goldman Sachs, who reported this morning a 58% drop in income. Investment banking fees were down 20% while advisory fees fell 46%. The news out of Goldman contrasts a bit with some of the other banks who already reported and one area of interest in those reports is the surprising strength in trading revenue.

Also reporting this morning was Carvana. The auto seller reported earnings earlier than expected and surprised investors with better than expected revenues and profits. The company also announced a major debt restructuring that will reduce shorter term obligations. Shares of Carvana are up over 25% in premarket trading.

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Elsewhere, retail sales for June showed an increase of 0.2% from May. The number was in line with the most recent monthly reading on the Consumer Prices Index and shows consumers are continuing to spend money at a pace consistent with inflation. That could be positive news as we head into the back-to-school shopping season. The 0.2% reading furthers my opinion that inflation appears to be stabilizing and that opinion is also being reinforced by a slight bounce in the U.S. dollar today as the outlook for interest rates seems clearer with the Fed expected to raise rates a quarter of a point next week.

After the close today, IBM
IBM
, Netflix
NFLX
and Tesla
TSLA
are all scheduled to report earnings. For IBM, I am interested to see if they mention anything with respect to AI and what the market’s reaction to that might be. For Netflix, I’ll be listening to hear what the company has to say with respect to subscriber growth. The company recently began their crackdown on password sharing and we’ll see if that translates into more people actually paying to use the service. As for Tesla, the company has been making a concerted effort to capture greater market share by lowering car prices this year and I’m interested to see if that strategy is paying off. Tesla has also signed a number of deals recently with other electric vehicle carmakers to use Tesla charging stations and we’ll see how that plays into their earnings as well.

Lastly, I’m continuing to watch volatility. In premarket, VIX is trading near 13.30. Volatility has been at this level for the better part of the last few weeks and really feels like it’s consolidating. One way of looking at that would be the market is very complacent at the moment. Another perspective would be the market is more prone to a shock. But with inflation seemingly stabilizing and earnings, thus far, being slightly better than expected, markets appear strong for now. We’ll see if that holds following tonight’s earnings. As always, I would stick with your investing plans and long term goals.

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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.