It’s no longer a question of whether the Federal Reserve will cut interest rates at its policy meeting later this month, the pressing issue is, by how much? And the market is grappling with how to appropriately price the expected 25 basis-point cut versus the preferred 50 basis-point cut.
Doubts about the magnitude of the cut sent equities lower Friday, capping the worst week for the market since the end of May. On Friday, the Dow Jones Industrial Average closed down 0.3% at to 27,154, losing 68 points. The S&P 500 index gave up 0.6% to close 2,977, while the Nasdaq Composite Index shed 0.7% to end the session at 8,146. All major benchmarks ended lower for the week, led by a 1.2% drop in both the S&P 500 and the Nasdaq, while the Dow logged a decline of 0.7%.
The decline was sparked a Wall Street Journal report suggesting that Fed officials were set on a rate cut of a quarter-percentage point at their July 30-31 meeting, not the half-point reduction the market wants. Fed-funds futures traders now see only a 22% chance of a half-point move, compared to expectations that were as high as 40% prior to the Journal’s report. The market’s reaction came despite better-than-expected results from tech giant Microsoft (MSFT), which suggests Q2 earnings expectations might not be as bad as feared.
This coming week, more tech heavyweights will step up to the plate to announce their results. A few home runs could re-energize investors’ appetite for risk. That, coupled with a surprise decision by the Fed, could renew excitement about where equities may head in the second half of the year. As for this coming week, here are the tech names to keep an eye on.
Facebook (FB) - Reports after the close, Wednesday, Jul. 24
Wall Street expects Facebook to earn $1.87 per share on revenue of $16.51 billion. This compares to the year-ago quarter when earnings came to $1.74 per share on revenue of $13.23 billion.
What to watch: Reports suggest Facebook recently reached a $5 billion settlement fine with the Federal Trade Commission stemming from various consumer and privacy practices. The company has also been pulled before Congress to testify about its proposed Libra cryptocurrency, which pundits believe raises more concerns over privacy, regulation and financial stability. The analyst community isn’t worried over these issues, however. Justin Post, analysts of Bank of America Merrill Lynch, who has a Buy rating on Facebook stock with price target of $224, sees the settlement as a “positive step.” Adding it “signals better cooperation” with the federal government and represents “very minor impact on cash balance or stock value.”
Tesla (TSLA) - Reports after the close, Wednesday, Jul. 24
Wall Street expects Tesla to report a per-share loss of 42 cents on revenue of $6.42 billion. This compares to the year-ago quarter when the loss came to $3.06 per share on revenue of $4 billion.
What to watch: Earlier this month, Tesla said it delivered 77,550 Model 3s in the quarter, compared with analysts’ average estimate of 73,144. That beat eased concerns about demand for the new electric sedan. And CEO Elon Musk has put the pedal to the metal, saying the company could deliver a record number of cars in the second quarter, topping the record 90,700 cars it delivered in final quarter of last year. In other words, Tesla's sales guidance on Wednesday will be the deciding factor in what the stock does.
Amazon (AMZN) - Reports after the close, Thursday, Jul. 25
Wall Street expects Amazon to earn $5.58 per share on revenue of $62.44 billion. This compares to the year-ago quarter when earnings came to $5.07 per share on revenue of $52.89 billion.
What to watch: Ongoing regulatory and antitrust scrutiny has rattled Big Tech and has seemingly been an obstacle to Amazon regaining its rightful place in the $1 trillion market cap club. The e-commerce and cloud computing giant, which reached that plateau last September, has seen its stock trade in a tight range. Strong top line growth on Thursday and a solid earnings could catalyze the stock near-term. Analysts believe the company’s one-day shipping initiative could drive revenue acceleration in the second half of the year, though the cost ($800 million) of cutting the Prime shipping time down from two days could decelerate earnings. By how much remains to be seen.
Starbucks (SBUX) - Reports after the close, Thursday, Jul. 25
Wall Street expects Starbucks to earn 72 cents per share on revenue of $6.67 billion. This compares to the year-ago quarter when earnings were 62 cents per share on revenue of $6.31 billion.
What to watch: With Starbucks shares up nearly 40% year to date, investors will be looking for signs that the company's long-term growth story is intact. Wall Street expects Starbucks’ Q3 revenue to rise. Although there are concerns regarding whether the company has saturated its market, Starbucks' same-store sales have risen at a steady clip. Last quarter, global same-store-sales rose 3%, driven by a 4% rise in the U.S. and a 3% rise in China. On Thursday investors will look to see if these trends can continue. The Street will also look for updates from management on the success of the company's rewards programs in both the U.S. and China.
Alphabet (GOOG , GOOGL) - Reports after the close, Thursday, Jul. 25
Wall Street expects Alphabet to earn $11.30 per share on revenue of $38.17 billion. This compares to the year-ago quarter when earnings came to $4.54 per share on revenue of $32.66 billion.
What to watch: The tech conglomerate will look to bounce back after the disappointing Q1 results sunk the stock price. Google shares have fallen more than 11% since those results, namely its Q1 revenue (up 16.7% to $36.34 billion) total which fell just shy short of Wall Street expectations. Complicating matters is the seemingly endless war on Big Tech which puts Google in the crosshairs of federal regulators looking to rein in tech’s access (and use) of consumers’ data. To what extent will these issues impact the company’s core business? Google’s improving search features and advertising dominance are expected to drive top-line growth. And investors are eager to learn whether the company’s cloud position is ready to take on leaders Amazon and Microsoft.