Understanding Investor Reactions to Earnings from Microsoft and Meta Alongside Inflation Concerns

To gain an edge, this is what you need to know today.

Unrealistic Expectations

Take a closer look at the recent developments regarding Microsoft Corp MSFT and Meta Platforms Inc META.

Here are some key points to keep in mind:

• This analysis focuses on broader market trends rather than individual companies, using the chart of MSFT stock as a reference.
• The chart highlights the moments surrounding Microsoft’s earnings announcement.
• Initially, the MSFT stock surged after reporting earnings that surpassed both consensus and whisper numbers.
• However, the stock experienced a decline following indications of slowing Azure growth during an earnings call.
  • Azure displayed growth of 34%, exceeding the 31% consensus estimate.
  • Looking ahead, Azure growth is predicted to decelerate to between 31% and 32%.
• The Arora Report suggests that investors are selling MSFT stock due to unrealistic expectations regarding Azure's performance. They are overlooking important details, such as:
  • Azure growth is expected to rebound in the second half of 2025.
  • Microsoft faces capacity constraints, which should alleviate as the supply of NVIDIA Corp NVDA chips increases.
  • Generative AI contributed 12% to Azure's growth.
  • Generative AI is projected to surpass a $10B run rate by Q2 2025.
• Additionally, the Arora Report's proprietary VUD indicator indicates a net supply of MSFT stock during the earnings release.
• Conversely, while Meta Platforms reported impressive earnings, investors are fixating on the company's high spending levels.
• According to the Arora Report, Meta’s capital expenditures align with its ambitious goals in AI, forecasting spending between $38B and $40B for 2024.
• Jobless claims have come in at 216K, lower than the 229K consensus, implying continuous strength in the job market.
• Given that the U.S. economy is heavily consumer-driven, it is crucial for investors to monitor personal income and spending, which remain strong. Recent data confirms this trend:
  • Personal income reported a growth of 0.3% against a 0.4% consensus.
  • Personal spending increased by 0.5%, surpassing the 0.4% consensus expectation.
• The PCE (Personal Consumption Expenditures) index, a key measure of inflation for the Federal Reserve, showed core data that was stronger than anticipated:
  • PCE came in at 0.2%, meeting the consensus.
  • Core PCE registered at 0.3%, higher than the 0.2% expectation.
• The official jobs report is due tomorrow at 8:30 AM ET, an essential indicator of the job market's health ahead of the upcoming FOMC meeting.
• Looking ahead, Amazon.com, Inc. AMZN and Apple Inc AAPL are scheduled to release their earnings after market close.
• The overall sentiment suggests a protective stance is prudent as investors navigate through these varied market currents.

Market Flows

Recent trading has shown that money flows are neutral for AAPL and Tesla Inc.

However, money flows are negative for Alphabet Inc Class C, META, AMZN, NVDA, and MSFT.

Similarly, the SPDR S&P 500 ETF Trust SPY and Invesco QQQ Trust Series 1 QQQ are seeing negative money flows.

Investment Insights

Understanding money flows in ETFs such as SPY and QQQ can provide investors with a critical edge. Being informed about when smart money is entering or exiting stocks, as well as assets like gold and oil, enhances decision-making capabilities. Popular ETFs in these categories include SPDR Gold Trust GLD and iShares Silver Trust SLV.

Protective Strategies

It is essential for investors to maintain a forward-looking perspective rather than relying solely on past performance.

Considering long-term positions and adjusting risk based on individual preferences can help strike a balance. This may include maintaining a protection band with cash or Treasury bills, along with tactical trades and hedges. Such strategies enable protection while still participating in market upside.

By determining protection bands, investors can tailor their strategies based on age and risk tolerance—those with a conservative approach may prefer a higher band, while younger investors might opt for a lower band. Maintaining adequate cash levels is crucial for seizing new opportunities.

Portfolio Strategies

In light of current market conditions, a standard 60/40 allocation may require re-evaluation, particularly concerning long-duration bonds.

Investors adhering to this strategy should focus on quality bonds or those with shorter durations. By leveraging bond ETFs tactically, investors can adapt to shifting market dynamics.

Through accurate predictions and comprehensive analysis, the insights shared aim to equip investors with the knowledge needed to navigate the complexities of today's market.

investors, earnings, Microsoft