MSFT is the obvious pain point but the status quo earnings environment was already struggling to support SPY above 400 . . . extending the rally needed a constructive catalyst and a yellow light from a $1.7 trillion company is not exactly the right stuff the bulls needed. We still love MSFT long term but just not for immediate gratification.

Now the spotlight shifts to the other members of the mega tech clique. GOOG and AMZN are probably not going to give the market transformational good news . . . at best, they dodge a bullet with “bad but not as bad as it could’ve been.” AAPL will engineer OK results as usual but anything better is unlikely.

And then there was TSLA. In the grand scheme of things, only a little bigger than fallen META now and smaller than old economy stalwarts (JNJ, BRK, XOM, V).

We knew the trailing quarter was probably decent but the only thing that matters now is FY guidance. TSLA had to hold the bottom line, despite supply shocks and deep discounts in China hitting the margins while the global economy gets “cautious.”

They did it. Guidance wasn’t thrilling. If anything, production growth looks like it’s flattening out . . . the stock needs to see Elon Musk continue to deliver 50%+ expansion a year, not admit that the best years are behind him.

Our models already incorporate significant margin compression in 4Q and additional deterioration throughout 2023. Consensus thinks this is as bad as it gets, which sets up disappointment ahead.

Either way, TSLA did it, but can’t do it on its own. The problem was that MSFT didn’t provide much of a constructive change to the status quo but now that the initial shock has passed the environment hasn’t appreciably worsened either.

End of day, status quo. A shrug. Money keeps rotating out of Mega Tech into true growth opportunities down the food chain: CRM WDAY ROKU and names like that are all up. Recent IPO CRDO is up. MBLY is up. That’s where the future is.

But money is not flooding out of Mega Tech right now. The numbers aren’t great and guidance is not cheerful . . . but stocks that were priced for apocalypse suddenly look OK. Not really a “buy.” Definitely not a “sell.” More rotation: hold what you like, dump what you don’t, buy what others are dumping.

DIA has been the real revelation, recapturing most of the bear market ground it lost last year despite high-profile glitches from JNJ and BA. This is where to find real energy in the economy (growth, see also XOM) as well as true defensive value. It’s not rocket science: if Big Tech has hit a growth wall, why pay a premium for those stocks and the indices that overweight them?

We’re watching IBM to see if it can break free from MSFT’s shadow. But we’re also watching URI and SLG to gauge just how cold things are in the housing market . . . and ABT on defense. Then HON and F on February 2 are more interesting than AAPL and AMZN, especially if TSLA guidance is weak.

Last year people noted that Mega Tech cast an ominous shadow over the market . . . but the market is still a lot more than a handful of gigantic and mature Silicon Valley stocks. That’s the side of the market we care about. Big Tech is now in recession mode (big job cuts, management pivoting toward margin defense and far away from growth) but the rest of the economy could still get something like a soft landing.