Poor week,
Most of the book struggled. I was expecting earnings to give this market the green light last week. We got an early attempt at a breakout then watched it unravel.
Goldman Sachs earnings work shows that companies beating EPS estimates have at median outperformed the S&P by 1.52 percentage points the following day while within TMT that number is -0.76%. Outside those sectors, it is plus 1.72%. So good earnings are getting rewarded; the difficulty is that the reward is showing up in different parts of the market.
I did write about how hard it was for tech companies to please the market at the moment. And being overweight both META and MSFT, I have a substantial interest in understanding why reactions have been the way they have. The broadening I have discussed is still there; if it wasn’t for the AI names, S&P would’ve been green in October. Thursday - 406 names closed green, yet the index closed red.
I think earnings answered the demand question, but the market is still asking for considerably more detail on what shareholders get out of it.
MSFT a good place to start… Azure grew 48% in constant currency with management guiding 49-50% on the same basis next quarter. It still says demand exceeds available supply. Operating cashflow was $58B and FCF was $18.6B, but since it’s part of the Mag7 cohort it gets thrown in the same conversation about funding. META has a different cash flow picture - the latest numbers showed they generated $32.8B of operating cash but required $34.9B of capex. FCF, therefore, is -$2.1B. Which is what I meant by the next-cheque problem I mentioned in my last post.
