Here Is Why Investors Do Not Like Good Earnings From Microsoft And Meta, Hotter Inflation Data – Apple (NASDAQ:AAPL)

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By Ronald Tech

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

Unrealistic Expectations

Please click here for an enlarged chart of Microsoft Corp MSFT.

Note the following:

  • This article is about the big picture, not an individual stock.  The chart of MSFT stock is being used to illustrate the point.
  • The chart shows when Microsoft earnings were released.
  • The chart shows MSFT stock initially spiked higher on earnings better than the consensus and whisper numbers.
  • The chart shows when MSFT stock dropped on comments of slower Azure growth during Microsoft’s conference call.
    • Azure growth came at 34% vs. 31% consensus.
    • Azure growth is expected to slow to 31% – 32%.
  • In The Arora Report analysis, investors are selling MSFT stock because their expectations were unrealistically high.  Regarding Azure growth, investors are ignoring the following:
    • Azure growth should pick up in the second half of 2025.  
    • Microsoft is capacity constrained.  In due course, capacity will increase as supply of NVIDIA Corp NVDA chips increases.  
    • Generative AI contributed 12% to Azure.
    • Generative AI is expected to exceed a $10B run-rate in Q2 2025. 
  • The Arora Report’s proprietary VUD indicator shows net supply of MSFT stock yesterday afternoon leading into and during the earnings release.
  • Meta Platforms Inc META reported great earnings.  Investors are overlooking the great earnings and focusing on the high spending.
  • In The Arora Report analysis, Meta’s capital expenditure is not out of line with its ambitious AI goals.
    • Meta anticipates 2024 capital expenditure to be $38B – $40B from prior $37B – $40B.  
  • Initial jobless claims came at 216K vs. 229K consensus.  This indicates that the jobs picture remains strong.
  • The U.S. economy is 70% consumer based.  For this reason, prudent investors pay attention to personal income and personal spending.  Personal spending is strong.  Here are the details of the new personal income and spending data:
    • Personal income came at 0.3% vs. 0.4% consensus.
    • Personal spending came at 0.5% vs. 0.4% consensus.
  • PCE is the Fed’s favorite inflation gauge.  The core data is hotter than expected.  Here are the details:
    • PCE came at 0.2% vs. 0.2% consensus.
    • Core PCE came at 0.3% vs. 0.2% consensus.
  • The official jobs report will be released tomorrow at 8:30am ET.  It is an important data point for the state of the jobs market ahead of the FOMC meeting next week.
  • Amazon.com, Inc. AMZN and Apple Inc AAPL report earnings today after the close.
  • As an actionable item, the sum total of the foregoing is in the protection band, which strikes the optimum balance between various crosscurrents.   Please scroll down to see the protection band. The protection band is one of the large number of unique edges that are available to members of The Arora Report.

Magnificent Seven Money Flows

In the early trade, money flows are neutral in AAPL and Tesla Inc TSLA.

In the early trade, money flows are negative in Alphabet Inc Class C GOOG, META, AMZN, NVDA, and MSFT.

In the early trade, money flows are negative in SPDR S&P 500 ETF Trust SPY and Invesco QQQ Trust Series 1 QQQ.

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Momo Crowd And Smart Money In Stocks

Investors can gain an edge by knowing money flows in SPY and QQQ.  Investors can get a bigger edge by knowing when smart money is buying stocks, gold, and oil.  The most popular ETF for gold is SPDR Gold Trust GLD.  The most popular ETF for silver is iShares Silver Trust SLV.  The most popular ETF for oil is United States Oil ETF USO.

Bitcoin

Bitcoin BTC/USD is range bound.

Protection Band And What To Do Now

It is important for investors to look ahead and not in the rearview mirror.

Consider continuing to hold good, very long term, existing positions. Based on individual risk preference, consider a protection band consisting of cash or Treasury bills or short-term tactical trades as well as short to medium term hedges and short term hedges. This is a good way to protect yourself and participate in the upside at the same time.

You can determine your protection bands by adding cash to hedges.  The high band of the protection is appropriate for those who are older or conservative. The low band of the protection is appropriate for those who are younger or aggressive.  If you do not hedge, the total cash level should be more than stated above but significantly less than cash plus hedges.

A protection band of 0% would be very bullish and would indicate full investment with 0% in cash.  A protection band of 100% would be very bearish and would indicate a need for aggressive protection with cash and hedges or aggressive short selling.

It is worth reminding that you cannot take advantage of new upcoming opportunities if you are not holding enough cash.  When adjusting hedge levels, consider adjusting partial stop quantities for stock positions (non ETF); consider using wider stops on remaining quantities and also allowing more room for high beta stocks.  High beta stocks are the ones that move more than the market.

Traditional 60/40 Portfolio

Probability based risk reward adjusted for inflation does not favor long duration strategic bond allocation at this time.

Those who want to stick to traditional 60% allocation to stocks and 40% to bonds may consider focusing on only high quality bonds and bonds of five year duration or less.  Those willing to bring sophistication to their investing may consider using bond ETFs as tactical positions and not strategic positions at this time.

The Arora Report is known for its accurate calls. The Arora Report correctly called the big artificial intelligence rally before anyone else, the new bull market of 2023, the bear market of 2022, new stock market highs right after the virus low in 2020, the virus drop in 2020, the DJIA rally to 30,000 when it was trading at 16,000, the start of a mega bull market in 2009, and the financial crash of 2008. Please click here to sign up for a free forever Generate Wealth Newsletter.

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