Good enough. A lot of the tension on Wall Street has evaporated now that two gigantic companies have reported their quarterly numbers and received a sigh of relief . . . if not unqualified applause.
Microsoft (MSFT) jumped as much as 6% once investors got a close look at how well its operations are holding up despite a slowing global economy, inflation and rising interest rates. That’s a good thing.
And Alphabet (GOOG) surged 5% on its numbers. Again, worth a sigh of relief. These two companies together are holding up well enough to shine through the gloom . . . and they’re big enough to account for 10% of the S&P 500 on their own.
When 10% of the market liberates itself from anxiety for another three months, it’s a big deal. We’ve already heard from Big Banking and those companies aren’t falling apart. All we needed was confirmation from Big Tech.
If these two companies are even remotely representative of their respective sectors, we’re looking at about 45% of the market flashing a green light. That’s big. It’s enough to tilt the scales toward the bulls.
We’ll know more when Apple (AAPL) and Meta (META) report later this week. Amazon (AMZN) will also help . . . it’s 22% of the consumer discretionary sector and since Tesla (TSLA) has already made a good showing, that’s enough to overcome a lot of pain elsewhere in retail.
But back up a minute. What happened with MSFT and GOOG that was so great?
MSFT actually reported a miss. Earnings only expanded 2.7% from last year, about half the rate Wall Street wanted to see. That’s sad. The company blamed the drag on a strong dollar and “evolving macroeconomic conditions.”
The stock initially dropped because Wall Street is already on edge. A miss is going to trigger automated selling. But then the conference call flipped the script by confirming that cloud computing revenue remains robust enough to hit consensus in the current quarter.
Personal computers are a tiny bit soft, but that’s practically a rounding error. Likewise, software is tracking 4-6% below consensus. Far from the end of the world!
In the coming year, guidance supports double-digit growth even in dollar terms. Good enough to support a rally. There’s no crash in these numbers. The world isn’t ending.
And that means that MSFT will not only survive but thrive. This is a company for the ages, a battleship of global capitalism. Full speed ahead!
GOOG is a similar but slightly smaller story. Earnings missed by 9% . . . but the company booked $100 million more ad revenue than expected, which proves that the ad slump other online networks are reporting just doesn’t stretch this far.
It could have been much worse. A lot of people were steeled for the worst case scenario . . . and it didn’t happen. Relief is a powerful thing. It’s in control right now.