Earnings season continued in full gear last week, where more corporations around the United States reported their results for the first three months of the year. The results have been a mixed bag with pockets of both strength and weakness.
The combined result has been enough to push the S&P 500 (which the C Fund tracks) to all-time closing highs, finally surpassing the previous closing high set in September 2018. However, the market still is a point away from touching the all-time intraday high of 2940.91 set in September. The closing highs measure the value of the S&P 500 that the index closes at each trading day, while the intraday high measures the high point from any time during its trading period at that time.
The Bright Side: Earnings Beats and Strong Growth
Microsoft reported strong revenue and earnings results last week that outdid analyst expectations, and the company’s stock climbed nearly 6% last week as a result. In particular, their Azure cloud computing segment is fueling much of their growth. This cloud platform serves as a growing data center and operating system backbone that many software applications from other companies run on. As of this point in time, Microsoft is the most valuable company in the United States with a market capitalization of about $1 trillion, which makes it the largest component of the C Fund for now.
Similarly, Amazon had strong earnings. Although their revenue was in-line with what analysts were expecting, their profits came in much stronger than expected. Amazon historically focused on growth more-so than profitability, but over the past year their profit margin has been ramping up. While many people think of Amazon as the big online retail company, their other half is Amazon Web Services, the largest cloud platform in the country. Much like Microsoft, Amazon rents out its server and software capabilities to other companies to run their applications on. As one key example, the Netflix service runs billions of hours of video streaming on the Amazon Web Services platform.
The Starbucks coffee chain reported moderately strong results, which were enough to boost its stock price to all-time highs. Investors have been concerned about Starbucks because its main growth strategy is to expand in China, which has had a slowing economy recently and increasing competition from local coffee brands. Their results for this quarter helped to cool these concerns and allow the stock to continue moving up for now.
The Dark Side: Earnings Misses and Low Guidance
3M Company, a large producer of consumable industrial products for both businesses and consumers, reported a big miss last week for both revenue and profits, reduced forward guidance, and announced layoffs. The stock dropped 10% in one day, which was its largest one-day fall in over three decades. Their best-known brand for consumers is Scotch tape, but they have thousands of other products in other brands as well. 3M is a member of the prestigious 30-company Dow Jones Industrial Average, so this big miss was a surprise to a lot of analysts.
Tesla, the popular electric car company, also reported a big earnings miss. Their revenue came in $600 million below what analysts were looking for and their net loss was much larger than analyst expectations. The company is in a tight spot with a significant amount of debt, consistent lack of profits, and logistics issues as it tries to ship its finished cars to their buyers.
Intel beat expectations this quarter but announced lower-than-expected guidance for next quarter, which sent the massive tech stock down 9% in one day and also negatively impacted the stock prices of many other semiconductor stocks due to concerns about weaker demand from datacenters.