Wall Street Breakfast Catalyst Watch: Fed Week, Earnings Blitz

Listen below or on the go on Apple Podcasts and SpotifyCatalyst watch for the week of July 23. Seeking Alpha Managing News Editor Kim Khan on what investors can expect when the Federal Open Market Committee meets. (00:21) Kim gives a brief earnings preview of Microsoft (MSFT), Amazon (AMZN), Meta Platforms (META) and Alphabet (GOOG) (GOOGL). (01:23) Why did Netflix (NFLX) slip following its earnings report? (02:59)

Julie Morgan: Kim, next week is obviously Fed week.

Kim Khan: Yeah, it’s the big week. And could it be the final big Fed week? And that is the question on everybody’s minds, given that they are almost certain that the Fed is going to raise rates by 25 basis points next week. The Fed Funds futures are pricing in a 98% chance of that, it doesn’t get really more certain as far as the market is concerned. And then overall, they think they’re kind of done for the year. There is still, like, a decent size, but not a majority chance that they could push the rates up again.

But, overall, people don’t see rates moving until next March when they expect the Fed will finally lower rates from where it’ll be, what they expect after next week. And we’ve had a lot of mixed data on that front, but I don’t think it’d be enough to change the Fed’s mind. There’s industrial production that came in weak that could forecast possible recession. But there’s also a strong jobs market data with jobless claims coming in today as we’re recording. So it seems like it’s just going be a straightforward meeting, which is, is good.

JM: We know next week, of course, so many companies are reporting yet again. We talked about the fact that there were a lot of companies reporting last week. But even more this week, I want to say three times as many. So more heavy hitters, Microsoft, Alphabet, Verizon, Meta Platforms, Coca-Cola, not to mention Amazon. So let’s touch on a few of these. Tell me, what do you see from Microsoft?

KK: Well, Microsoft is all about the cloud. And so I asked our editors again for the one thing to look at. And Azure is the all-important metric for Microsoft, how cloud spending is going, and the growth rate for that, and that’s pretty much what it’ll trade on.

JM: Now tell me, what about Amazon?

KK: Amazon is going to be cloud-driven as well, but I’ve been told to look out for any updates on AI benefits and also on how Prime Day impacted Q3 earnings, that’ll probably be on the earnings call.

JM: Yeah. I think I helped them out just all by myself. What did the editors have to say about Meta Platforms?

KK: Well, they said the financial focus is going to be on the progress of cost cuts and monetization of Reels, which is kind of its rival for TikTok. Longer-term, again, they said AI. I don’t think we could escape that from any of the mega caps, really.

JM: Well, of course not. And finally, we have Alphabet.

KK: Yep. And that’s another cloud story with Google Cloud continuing to ramp up, and how does generative AI fit in there. So we’ve got the two big ones we’ve been seeing. But it’s also an ad company. So we’re going to look to YouTube to see how it’s faring as a gauge for the health of the overall company on ad spending.

JM: Now let’s talk about a company that reported earnings this week, Netflix, the GAAP EPS of $3.29, beat by $0.44. Revenue of $8.19 billion missed by a $100 million. When we are recording right now on Thursday, it looks like Netflix is down 9%. So my question is, what is it that investors heard that they didn’t like? Because they also beat on subscribers.

KK: Yeah. Well, one thing, they came in a little soft on revenue, and that might have been enough just to trigger or sell the news reaction where the stock had ramped up about 8% going into earnings in the last five days. So we’re just back where you started five days ago, not a whole lot there. So that could have been a kind of whispered everything where any sign of weakness on the top line is a little concerning.

There’s a good news story in there, in that its password sharing crackdown is helping add subscribers. And that maybe another thing, so it added 6 million subscribers, maybe people wanted to see it adding more, especially when they had a surprise subscriber drop. It’s tough to say, but what the markets are really teeing off on there, but it seems to be working. I mean, I’d say it’s good news from Netflix. Not good news if you’ve got a whole bunch of friends in there and they all ask, like Netflix password, but there you go.

JM: So, Kim, tell me, will you be watching the World Cup?

KK: Yeah, definitely. I’m a huge soccer fan, and I’ll always be watching any international action. So I’m going to be watching it. Wells Fargo actually put an interesting note out on where Women’s World Cup viewers are coming from, and the big jump has been in South America. So from between the 2015 and the 2019 World Cups, South America saw a jump of more than 500% in viewership. So it’s really catching on there.

The big contrast is, my home, North America, where there was a decline of 5%. So it kind of leveled off, and the U.S. Women’s World Cup team is awesome. So I don’t know why people aren’t regularly watching, but how some people feel about women’s soccer in the States and soccer in general in the States. So it’s kind of tough to get traction on that front.

JM: Yes. I’ll be watching right along with you. Anything else you’d like to add?

KK: I was just going say, people might be asking with all of these big stocks reporting, and it’s almost 40% of the S&P next week. Where’s Apple? And you got to remember that Apple pushed out its earnings report last quarter, and everybody kind of tried to figure out reasons for why they did it. There was never ever a concrete one, but now they’ll be reporting not until August. Usually, they’d be out the same day with all these other big names.

JM: Where is Apple? That’s a good headline.

KK: Yeah, forget all these other companies. Where is Apple?