Your essential market insights for today.
High Hopes and Market Realities
For a detailed view, please click here to see an enlarged chart of Microsoft Corp MSFT.
Key observations include:
- This article focuses on market trends rather than specific stocks. The MSFT chart serves as a case study.
- The chart indicates when Microsoft released its earnings.
- Initially, MSFT stock rose due to better-than-expected earnings.
- Subsequently, MSFT stock fell following comments about slower growth in Azure during the earnings call:
- Azure’s growth rate was 34%, which surpassed the 31% consensus.
- Future growth for Azure is projected to slow to 31% – 32%.
- Analysis by The Arora Report suggests that investors are selling MSFT due to overly high expectations. Consider the following points about Azure growth:
- Growth is expected to rebound in the latter half of 2025.
- Microsoft currently faces capacity constraints, but this will improve as supplies of NVIDIA Corp NVDA chips increase.
- Generative AI contributed 12% to Azure’s growth.
- Generative AI is projected to exceed a $10 billion run rate by Q2 2025.
- The proprietary VUD indicator from The Arora Report indicated net selling of MSFT leading into the earnings release.
- Despite strong earnings, Meta Platforms Inc META‘s high spending is catching investor scrutiny.
- Meta anticipates 2024 capital expenditure of $38 billion to $40 billion, slightly up from the previous estimate of $37 billion to $40 billion.
- The latest jobless claims reported at 216,000, which is better than the 229,000 consensus, indicating a robust job market.
- As the U.S. economy is primarily consumer-driven, monitoring personal income and expenditures is crucial. Strong indicators show:
- Personal income increased by 0.3%, below the 0.4% consensus.
- Personal spending surged by 0.5%, exceeding the expected 0.4%.
- The Personal Consumption Expenditures (PCE), favored by the Fed, showed higher-than-expected inflation:
- PCE remained at 0.2%, in line with consensus.
- Core PCE rose to 0.3%, surpassing the anticipated 0.2%.
- Tomorrow at 8:30 am ET, the official jobs report will be released, a key indicator before next week’s FOMC meeting.
- Results from Amazon.com, Inc. AMZN and Apple Inc AAPL will be announced after the market closes today.
- As a strategic takeaway, overall market conditions suggest a need for a balanced protection strategy between cash and tactical trades. Please see the protection band section below for further details.
Market Movements Among the Magnificent Seven
In early trading, money flows into Apple Inc AAPL and Tesla Inc TSLA appear neutral.
Negative money flows are evident with Alphabet Inc Class C GOOG, META, AMZN, NVDA, and MSFT.
Additionally, the SPDR S&P 500 ETF Trust SPY and Invesco QQQ Trust QQQ are also experiencing negative flows.
Investor Insights: Momo Crowd and Smart Money
Understanding money flows in major ETFs like SPY and QQQ grants investors a strategic advantage. Recognizing when smart money is active in stocks, gold, and oil provides an additional edge. Notably, the most popular ETFs for these commodities include SPDR Gold Trust GLD for gold, iShares Silver Trust SLV for silver, and United States Oil ETF USO for oil.
Bitcoin Trends
Bitcoin BTC/USD remains in a steady range.
Strategies for Protection and Action
Investors should maintain a forward-looking perspective. Holding good long-term positions is wise. Depending on individual risk tolerance, a protection band may include cash, Treasury bills, short-term trades, and hedges. This aligns with protecting investments while still allowed for potential growth.
By adding cash reserves to hedges, investors can effectively manage risk. A protection band designed for older or conservative investors may lean towards a higher cash allocation, while younger or more aggressive investors might find lower cash reserves suitable. Not hedging should prompt careful consideration of overall cash levels.
A 0% protection band signals a bullish stance, indicating full investment, while a band of 100% suggests a bearish outlook that requires aggressive protection strategies.
It’s crucial to have sufficient cash on hand for emerging opportunities. When adjusting hedges, consider refining stop-loss levels for stock positions and allowing flexibility with high beta stocks, which typically experience greater volatility than the market average.
Reassessing the Traditional 60/40 Portfolio
Based on current risk assessments, traditional 60% stock and 40% bond allocations are not favored now. Investors preferring this model should focus on high-quality bonds with five-year durations or less. More experienced investors might use bond ETFs tactically rather than strategically at this time.
The Arora Report has a history of accurate market predictions, having accurately forecasted significant market movements, including the early AI rally, the bull market of 2023, and more. For ongoing insights, consider signing up for the free Generate Wealth Newsletter.
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