Both the Nasdaq and S&P 500 have entered green territory for 2020, but today’s earnings could be make-or-break for the market’s rally
There is an air of apprehension surrounding the market this morning as Wall Street braces for an important day of earnings. This tension is so palpable that I can feel it from my remote-working space in Ireland and comes thanks to disappointing results from Snap Inc (NYSE: SNAP) and United Airlines (NYSE: UAA). Despite Snap’s revenue soaring 17% year-on-year, its losses piled up to $326 million, up from $255 million last year, while United experienced a whopping $2 billion loss.
It wasn’t all bad though, as Coca-Cola (NYSE: KO) saw its stock jump 3% after stating that the worst was likely behind it, while Roomba-maker iRobot (NASDAQ: IRBT) smashed expectations, albeit whilst providing modest guidance.
However, the main event of this week’s earnings, and perhaps the whole season, comes today as market darling and all-round hype beast Tesla (NASDAQ: TSLA) shows us its books for Q2 after the bell. It won’t be alone either as the first of the Big Tech giants, Microsoft (NASDAQ: MSFT) will report too, alongside Chipotle Mexican Grill (NASDAQ: CMG), the Nasdaq (NASDAQ: NDAQ), Las Vegas Sands (NYSE: LVS), and many more.
Why is Tesla so important though?
There’s no hiding from the market’s extreme run of late, with the Nasdaq soaring since its March lows, and the S&P 500 (NYSEARCA: VOO) and Dow Jones (NYSEARCA: DIA) following closely behind. The tech-heavy Nasdaq has been driven largely by Big Tech stocks as well as Elon Musk’s electric vehicle giant, Tesla.
Tesla has been, and likely always will be a point of contention amongst investors. Since hitting a share price low of $361.22 in mid-March, Tesla has rallied 334%, delivered a blowout of 90,650 vehicles in Q2, and became the most valuable automaker on the planet. At one point it was being traded 10,000 times an hour, leading many contrarian investors to label it as mere hype, along the same vein as Virgin Galactic (NYSE: SPCE) or Beyond Meat (NASDAQ: BYND); a gamble for day traders and newbies alike.
Whatever opinion you hold, you cannot deny that Tesla has been a major catalyst behind the market’s performance this year. Though it did smash expectations for vehicles delivered this quarter, this is no guarantee that Tesla will post a profit — the last requirement it needs to join the S&P 500.
To get to this number of deliveries though, it needed to reduce its vehicle prices, spend big on worker safety during a pandemic, and up its marketing drive, all of which costs money. Should Tesla be found out to be simply talking the talk but not walking the walk, then this overpriced train is going to grind to a halt, along with much of the market’s current bullish sentiment.
Tesla will report after the bell, with EPS estimates ranging from a loss of $0.14 to a profit of $0.19, while the general consensus for revenue is around $5.1 to $5.4 billion.
So, where does Microsoft fit in?
Stepping away from speculation and into the ever-dependable world of FAAMG, Microsoft’s earnings will give investors a good indication as to how the world’s biggest names are performing. While Tesla’s competitors include other volatile businesses such as Nikola (NASDAQ: NKLA) and NIO (NYSE: NIO), Microsoft’s peers could not be more different: Apple (NASDAQ: AAPL), Amazon (NASDAQ: AMZN), Facebook (NASDAQ: FB), and Alphabet (NASDAQ: GOOG).
Prior to last week, Big Tech has provided a relatively safe haven for some investors. However, with the likes of Apple forced to close its stores across the U.S. again due to the coronavirus, Facebook experiencing an ad boycott, and Google under investigation once more, storm clouds are gathering. Microsoft will give investors a first-glimpse into Big Tech’s Q2, and having recently hit an all-time high, we are hoping the good times will keep on rolling.
Microsoft is expected to report earnings of $1.38 per share on $36.64 billion in revenue. Investors would do well to watch for the market’s reaction to Microsoft’s results, as when a $1.7 trillion-dollar company begins making waves, it is usually felt across the world of investing.
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