I joked in Monday’s Power Trends that we should just close the stock market in August and September.
I take it back… I think.
Stocks have improved since Monday’s selloff – though I expect more volatility ahead in this typically bumpy time of year.
But the main reason I “take it back” is that we would miss one of the four quarterly earnings seasons of the year. For a quant guy like me, the data in those reports is the lifeblood of our fundamental analysis.
We get updated numbers that my Quantum Edge system pull ins, analyzes, and uses to generate up-to-date Quantum Scores for more than 6,000 stocks – a process that spotlights the best stocks to buy and the weakest companies to avoid.
There are no more important companies in the market right now than the illustrious Magnificent 7, which accounted for a big chunk of the market’s rally going back to last year but have gotten whacked recently. Those seven stocks have dived 17.5% on average in just the last month.
Just two weeks ago, we talked about the beginning of the Magnificent 7 earnings from Tesla (TSLA) and Alphabet (GOOGL)… and some of the volatility that caused.
And last week we got four more reports from Apple (AAPL), Microsoft (MSFT), Amazon (AMZN), and Meta Platforms (META).
Let’s take a quick look at the Mag 7 earnings and ratings, and see how earnings across the market are shaping up.
Last Week’s Earnings News
The good news: Earnings are working.
According to FactSet’s latest data, with three-quarters of S&P 500 companies reporting, 78% surpassed earnings expectations and 59% topped revenue estimates. The blended growth rate, which combines the 75% of companies that have reported with expectations for the 25% still to come, stands at 11.5% – the best since the fourth quarter of 2021.
That doesn’t point to a recession, despite fears resurfacing. And this morning’s initial jobless claims were also better than expected, softening fears somewhat. Headlines will come and go, so we rely on the data.
Now how about those Mag 7…
Apple (AAPL) beat the Street’s expectations. The company posted $85.8 billion in revenue, up 5% year over year and beating estimates of $84.5 billion. Earnings per share grew 11% to $1.40, also ahead of estimates of $1.35.
Apple’s most important part of its business remains the ubiquitous iPhone, which accounted for about 46% of total sales during the quarter. That product alone brought in $39.29 billion in revenue, a 1% decline since last year.
The company is betting big on AI, with its announcement of updates to Apple Intelligence – its personal intelligence system that puts generative AI models at the core of iPhone, iPad, and Mac.
Microsoft (MSFT) hasn’t had the best month after major issues with its antivirus software from CrowdStrike downed computers and created chaos for many businesses – including banks, health care companies, and, most noteworthy, airlines.
The chaos continued when shares dipped after investors glazed over better-than-expected earnings and revenue and instead focused on MSFT’s disappointing cloud results. Revenue from its platform Azure and other cloud services grew 29% during the quarter. That’s solid if you ask me, but it was below expectations of 31% growth. Azure hadn’t fallen short of estimates since 2022.
But the company did beat earnings estimates of $2.93 by making $2.95 per share and revenue of $64.7 billion versus estimates of $64.4 billion.
Amazon (AMZN) missed revenue estimates and issued disappointing guidance for the current quarter, and shares slid 9% the next day.
The company reported second-quarter revenue of $147.9 billion, below estimates of $148.6 billion. Earnings of $1.26 per share beat expectations of $1.03. Guidance for the current quarter forecasts 8% to 11% growth over last year.
Unlike Microsoft, Amazon’s cloud services topped revenue estimates with a reported $26.3 billion for the quarter.
Shares of Meta Platforms (META) bucked the Mag 7 trend by popping 5% – and on a day when the market was down – after the company beat the Street’s estimates for both revenue and earnings: revenue of $39.1 billion vs. $38.3 billion expected and earnings of $5.16 per share vs. $4.73 expected.
META also issued sales guidance above current estimates by forecasting a median $39.8 billion for this quarter.
Have the Mag 7 Quantum Scores Changed?
My Quantum Edge system pulls in thousands of data points to create a single score: the Quantum Score. This score combines both fundamentals and technicals, both of which can be affected by earnings reports.
A company’s latest earnings data, like sales growth and profit margin, go straight in the Fundamental Score, while price movement after a good or bad earnings report can affect the Technical Score – which we saw in several of the Mag 7 stocks that have reported already.
When we looked at Tesla (TSLA) earnings nearly two weeks ago, the company had a respectable Quantum Score of 60.3. TSLA has since dropped to 53.5.
Source: TradeSmith Finance
You can see that change is solely from the technicals dropping from 50 to 38.2, as the Fundamental Score remains the same. And with those fundamentals continuing to rate well at 75, I still wouldn’t bet against TSLA in the long run.
Alphabet (GOOGL) remains relatively unchanged. The technicals slipped a little, causing the Quantum Score to move down from 70.7 to 69. The fundamentals are still rock solid, though.
Here’s how the rest of the Mag 7 shape up in my system after reporting last week:
- MSFT had a minor fall from 63.8 to 60.3.
- AAPL had a drastic move from 67.2 to 56.9.
- META saw an increase from 69 to an impressive 74.1.
- AMZN fell from 62.1 to 55.2.
As you can see, earnings reports can have drastic impacts on the Quantum Score. But you need to look at both the fundamentals and technicals to see what’s really driving the change.
On a purely ratings basis, META is the only one of the Mag 7 currently in my Quantum Edge buy range of 70 to 85.
If you invest in high-quality stocks with strong fundamentals, they are set up to weather the volatility that can come with earnings seasons. Especially when you add in Big Money inflows.
That’s always my focus, and those are exactly the kinds of stocks we focus on in my Quantum Edge Pro service.
We still have one more “Magnificent” stock left to release earnings this quarter. Investors will be watching Nvidia (NDVA) closely when it reports on Aug. 28. It’s the poster stock for artificial intelligence, and I’ll be sure to share my updated ratings when the results are in.
Talk soon,
Jason Bodner
Editor, Jason Bodner’s Power Trends
Disclosure: On the date of publication, Jason Bodner held a position in Alphabet (GOOGLE), Tesla (TSLA), and Nvidia (NVDA) mentioned in this article.
