Microsoft And Google Couldn’t Keep The Market Green

Courtesy of Yahoo

Taking Profits In Energy

The energy trade has gotten way ahead of itself currently. From a technical perspective, is now trading back at the same levels that preceded each of the last several major corrections. What will trigger that correction is unclear? However, it is worth noting there is a fairly high correlation to economic growth, which is weakening rapidly, and stock prices.

Based on that information, we took profits in our energy holdings yesterday and reduced positions back to target model weights.

Tweet Of The Day

Tweet Of The Day

Ford Earnings

Ford Motor Company (NYSE:) crushed after the bell and the shares are up 10% this morning premarket. The company early doubled Wall Street’s earnings expectations and slightly beat revenue projections for the third quarter, leading the automaker to increase its annual guidance for the second time this year.

Here’s how Ford performed versus what Wall Street expected based on average analyst estimates compiled by Refinitiv.

• Adjusted EPS: 51 cents per share adjusted vs. 27 cents per share expected
• Automotive revenue: $33.21 billion vs. $32.54 billion expected

Importantly, one of the main reasons for our purchases initially, was the company would reinstate their dividend this year. That expectation became reality as ord said the fourth-quarter dividend of 10 cents per share on outstanding common and Class B stock will be paid on Dec. 1 to shareholders at the close of business on Nov. 19. We hold a 2.5% position in the Equity Model.

Visa Earnings

Visa (NYSE:) reported its fiscal yesterday after the close. GAAP EPS of $1.65 easily beat the consensus of $1.55. Revenue of $6.56B (+28.6% YoY) came in slightly above the consensus of $6.51B. Payments volume growth also topped estimates, coming in at +17% YoY versus expectations of +15% YoY. Cross-border payments volume rose +38% YoY versus expectations of +31.7% YoY; however, management’s outlook is not as rosy.

The CFO noted that revenue growth significantly depends on the pace of cross-border travel recovery, and V does not expect cross-border travel to reach 2019 levels until mid-2023. The outlook is weighing on performance as the stock closed down 6.92% in yesterday’s trading. We hold a 1% position in the Equity Model.

Advanced Micro Devices Earnings

Advanced Micro Devices (NASDAQ:) reported yesterday after the close. GAAP EPS of $0.75 beat the consensus of $0.61. Revenue also came in above consensus at $4.3B (+53.9% YoY) compared to expectations of $4.1B. According to the CEO, the growth is being driven by server chips, with data center sales more than doubling YoY.

Guidance for Q4 revenue was set to $4.4B-$4.6B, which blows analyst forecasts out of the water. As a result, management increased guidance for FY21 revenue growth to 65% from 60%. The stock is up 1.2% in mid-day trading. We hold a 2% position in the Equity Model.

Microsoft Earnings

Microsoft reported its fiscal first-quarter earnings yesterday after the close. GAAP EPS was $2.71, which beat the consensus of $2.07. also came in above consensus, at $45.3B (+21.8% YoY) versus an expected $44B. The beat was driven by a 50% YoY increase in Azure and other cloud revenue.

Management offered guidance for Q2 revenue above the consensus at $50.15B-$51.05B versus estimates of $48.92B. The stock is traded 4.3% higher following the results. We hold a 2.5% position in the Equity Model.

Alphabet Earnings

Alphabet Inc Class C (NASDAQ:) reported third-quarter earnings yesterday after the close. GAAP EPS of $27.99 topped the consensus of $23.32. Revenue of $65.1B (+41% YoY) also of $63.2B thanks to impressive advertising revenues. This was GOOG’s largest quarterly revenue gain in 14 years, and the growth led to an operating margin increase of 8%.

Management included a caveat with the impressive results, noting:

“Given the gradual recovery in results through the back half of 2020, the benefit from lapping prior year performance diminished in Q3 versus Q2 and will diminish further in Q4”.

The market’s reaction to the release was very bullish with the stock up 4.8% on the day. We hold a 2.5% position in the Equity Model.

The Yield Curve Is Flattening

The table below shows the mid-day change in U.S. Treasury yields. Note the distinct flattening of the yield curve as short-term yields rise while long-term yields fall. For instance, 30-year bonds are down nearly 7 bps, while the note is up 3.5bps.

Bond traders are pricing in future Fed rate hikes, while at the same time understanding that tapering QE and rate hikes will slow growth and inflation, to the benefit of longer maturity bonds. The 20/30 year curve will most likely be the first part of the curve to invert. The yield difference between those two maturities is only 1.7bps.

Mid-Day Change In U.S. Treasury Yields

Energy Sector Allocations