The opinions expressed below are my own and do not necessarily represent those of Visdom Investment Group, LLC.
Mixed signals.
Meta, Alphabet, and Microsoft announced last night. GOOG climbed about 2%, MSFT fell about 3%, and META dropped 11%. The shareholder groups reacted differently to the results of these three megacaps and the overall result for the market was bearish. The confidence in the Mag 7 is lessened. Tesla’s less-than wonderful results last week can be viewed in a new light today. The Mag 7 aren’t so magnificent lately. What will Apple and Amazon say tonight? US stocks didn’t react much to the Trump/Xi trade agreement. It’s essentially a 1-year tariff truce with US tariffs on China now at 20%. Regardless, the S&P spent the entire session negative as stock investors focused on earnings season more than other factors. Capital flow was elevated again at 126%.
The Mag 7 results thus far have not been bad. The post-announcement stock performance has been. This obviously suggests that market expectations have gotten to far out in front of the businesses. The future may yet be rosy but the stock prices, for the short-term, aren’t zooming higher. There’s a case to be made that this is healthy, both fundamentally and technically. The bears say otherwise. As usual the truth is probably in the middle.
The Mag 7 have rewarded shareholders tremendously and expecting more of the same is probably unrealistic. Will investors compress Mag 7 valuations significantly as a result? The drops today don’t suggest the market is dramatically repricing things. It looks like markets are pruning back some optimism. Is that where the pain will stop though?
The whole market is going to feel the result of however far shareholders take the repricing process of the Mag 7.
With luck, the Mag 7 will find a base shortly and the stocks will have to rebuild from there, ideally as the firm’s results come in.
Of course, things could get worse and messy. If the downside develops momentum, the fundamental case will be affected. There could be lots of pain for the Mag 7 and therefore the rest of the market.
It’s in the hands of Apple and Amazon tonight. See you tomorrow.
-Mike
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