Weak Sentiment Trumps Good Earnings

Thus far, earnings season has been dismal, not because Corporate America is falling apart, but because investors are in a bad mood. They’re looking past the good news right in front of them and straining to see the bad news somewhere out in the murky future. So far, about 66% of S&P 500 companies beat Wall Street analysts’ projections, and 81% beat profit expectations. Those numbers are strong. But the S&P 500 Index is down 6.5% so far this month. So I want to highlight a couple of quotes from professional money managers to corroborate the point. Karen Finerman of Metropolitan Capital Advisors says it feels like investors are “going to be disappointed no matter what [companies report].” BMO’s Brian Belsky says selling has become “indiscriminate,” but that just means there are “some great companies on sale.” I’ll highlight three of those great companies below, which have all experienced 20+% corrections over the last 4-6 months.

Google (GOOGL) posted total revenue in line with Wall Street expectations. Revenue growth did slow somewhat, but remains healthy. First quarter’s operating profit margin of 30% was a bit better than expected. By product line, advertising revenue came in slightly ahead of expectations, cloud services revenue shot up 43% (in line with expectations), and YouTube revenue rose 14% but fell shy of estimates. Management announced a plan to set aside $70bil to buy back stock shares. This is exactly what the company should do in the midst of an uncertain operating environment with lots of cash on hand. Overall this was a very positive report and yet the stock is down 2% today.

Microsoft (MSFT) grew revenue by 18% and earnings per share by 9% during the first quarter, narrowly beating expectations. All of its major product lines saw double-digit sales growth, helped by price increases. Cloud computing software, a real bright spot, grew 25%. Management’s forward guidance was also strong. Here again, we have a very positive report, but this time investors responded by snapping up shares (+7% today).

Visa (V) posted what CNBC’s Jim Cramer called “extraordinary numbers” with 26% sales growth and 30% profit growth. Compared with pre-Covid levels, total payment volume on the Visa network is up 135%. And that includes the current adverse situation in Europe. Management confirmed US consumer spending (and pent up travel demand in particular) is strong. The stock surged 8% this morning.