More Earnings Gives Stocks Outside Magnificent 7 A Chance To Step Up

Key Takeaways

• Heavy Week For Earnings But Less Headline Names
• Powell Reiterates Rates Will Come Down But Probably Not In March
• Concentration Risk In Stocks Continues Increasing

Following a strong rally on Friday, the S&P 500 managed to close the week up 1.4%, setting another all-time closing high of 4958.61. The Nasdaq Composite also closed higher, gaining 1.1% for the week. The gains were fueled by a rally on Friday, led by Amazon
AMZN
and Facebook parent, Meta.

If last week was the headline act for earnings and economic data, this week is the B-side but it’s a long list of names. There are however, a few big names reporting earnings this week. Before the open today, Caterpillar reported numbers that missed on revenues, but the company said they are seeing strong demand across the world. The company also announced cost-cutting plans and as a result, the stock is trading higher by about 4% premarket. Along with Caterpillar, shares of Deere, which reports next week, are also higher by about 1%.

Shares of McDonalds are unchanged in the premarket following a beat on earnings but miss on revenues. The company said the conflict in the Middle East hurt international sales, though they reiterated guidance for the full year. Maybe it’s just me, but I think if everyone would just put their weapons down and pick up a Shamrock Shake, the world would be a better place.

One other stock reporting before the market open was Estee Lauder. The cosmetic company missed on revenues but announced a reorganization that will include job cuts. Our customers at tastytrade have been putting on long positions in this stock over the last two weeks and it appears they’ll be happy this morning with the stock higher by 13.5% premarket.

Later this week, we’ll hear from Disney, Ralph Lauren and Affirm
AFRM
. I’m interested in all of these for differing reasons. Disney has been under heavy scrutiny by shareholders since Michael Eisner returned and their earnings could be a tipping point for his most recent tenure. I’m interested in Ralph Lauren’s numbers because we have seen a number of higher end retailers continue to report strong earnings in what could be an indication of continued strong consumer demand. Finally, Affirm gives a look at the opposite end of the spectrum and customers who are looking to finance purchases. Earnings from both these companies offer a look at consumer spending across a spectrum.

While there are a number of economic data points scheduled for this week, they are probably less important than last night’s 60 Minutes interview with Jerome Powell. In the segment, Powell reiterated it’s unlikely we’ll see an interest rate cut in March. That comes after a much stronger than expected jobs report last Friday. At the same time, he also said he believed rates would come down later this year. According to the CME, the chances of a rate cut in March have fallen to just 15% after being as high as 80% a few weeks ago. Looking out to May, the probability of a cut is 65%.

A few other things I want to point out as we head into the week. First is the rally we saw on Friday. I’ve spoken often about the concentration of market gains in just a handful of stock, mainly the Magnificent Seven. That concentration risk was amplified Friday as just a couple stocks propelled the market’s run. Shares of Amazon were higher by nearly 8%, but it was Meta that really carried the day. That stock was up 20% and was responsible for 40% of Friday’s gains. That level of concentration isn’t what you want to see and hopefully this week, we’ll see some other companies step up to help.

Next up are Nvidia, Boeing
BA
and a tale of two stocks. Nvidia is up over 3% in premarket. Goldman Sachs added the chipmaker to their conviction list with a price target of $800. Shares of Nvidia are already up nearly 34% to start the year. Meanwhile, Boeing continues to struggle. This morning the company announced more potential issues uncovered in the fuselage of fifty yet to be delivered planes. That stock is down 2% premarket and 19% this year.

Finally, I want to point out the level of the VIX. Although still low by historical standards, volatility has been quietly climbing despite the market pushing to new highs. In premarket, the VIX is up nearly 2%. As I mentioned above, there is a lot of concentration risk in the market at the moment. That may explain why volatility is inching up a bit and it could be a potential warning sign of a market in need of a rest. With nearly half of the S&P 500 still to report earnings, we’ll see if other companies can step up to the plate and share some of the load. If not, I wouldn’t be too surprised to see the market take a breather. As always, I would stick with your investing plan and long term objectives.

tastytrade, Inc. commentary for educational purposes only. This content is not, nor is intended to be, trading or investment advice or a recommendation that any investment product or strategy is suitable for any person.