The FOMC day has arrived amid strong US corporate reporting season and at a time when investors are not really sure whether peak growth has already been reached. Ahead of the FOMC decision later on, the stock markets have recovered after Tuesday’s drop with US futures holding in the positive territory at the time of writing. Overnight, the sharp sell-off for Chinese equities also paused, leading to a rebound for European indices this morning. Earnings from big US tech giants Apple, Alphabet and Microsoft all beat expectations with double digit growth last night, although that’s not to say their shares necessarily skyrocketed as investors wondered whether such level of profitability will be sustained in the future. More tech earnings are on tap today with Facebook, PayPal and Qualcomm all set to post their results after the close, along with Ford. Pfizer, Boeing, McDonalds reported ahead of the bell. From the UK, Barclays said its profits trebled, sending the lender’s shares up 5% to the top of the FTSE 100 this morning.
Keep an eye on US tech sector
Technology will remain in focus after mixed reception to last night’s strong results from Apple, Alphabet and Microsoft. Although all posted great results, the somewhat muted reaction suggests investors had already priced in strong numbers and are unsure whether such level of profitability will be sustained in the future.
Apple shares were down 1.5% in pre-market after the company predicted slowing revenue growth and despite posting numbers that blew past analyst expectation.
Microsoft was only up 1.2% despite posting its most profitable quarter ever thanks to its cloud-computing division.
Alphabet shares were 1.7% higher as it easily beat on both top and bottom lines, as ad revenue rebounded sharply after slowing down during lockdown.
Facebook is likewise expected to post strong results tonight with analysts calling for profit of $3.52 a share, representing about a 70% growth, with revenue seen nearly doubling to $27.9 billion. The social media platform’s key metric - monthly active users – are expected to have grown 7.3% to 2.9 billion in the last quarter.
The key questions will be whether we will see continued strength in Facebook and other technology shares or a period of weakness or consolidation? A lot of the positivity has already been baked in and with investors unsure about the pace of growth in the coming months, I wouldn’t be surprised to see some weakness, especially in light of the lacklustre performance of the above tech giants to their results last night.
FOMC to provide more tapering cues?
Meanwhile, the Fed may provide more signals about tapering QE in the months ahead, which could potentially hurt stocks across the board if the market deems it to be more hawkish than what the Fed chair Jay Powell had led us to believe a couple of weeks ago in his testimony.
So, despite index futures being up and seeing very nice numbers from the big tech giants, I would be wary of going in full-on bullish mode into the FOMC day. That’s not to say I am calling the top for the tech sector. Rather, I expect to see some short-term weakness or a consolidation phase.
Nasdaq holding bullish channel for now
Indeed, the Nasdaq 100 still needs to show a clear bearish reversal, to encourage technical sellers to grow in confidence. One such scenario would be if and when it breaks out of its rising channel. If that happens then we could see some follow-up technical selling. For now, there’s very little bearish signals to work with, until the chart tells us otherwise.
Source: ThinkMarkets and TradingView.com
Corporate results and macro data highlights on tap for this week
Wednesday