Pro Perspectives 7/24/23





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July 24, 2023

It's a big week.  We'll get Q2 earnings from Google (Alphabet), Microsoft and Facebook (META) over the next 48 hours.
We'll hear from the Fed on Wednesday, the ECB Thursday morning, and the Bank of Japan Thursday night (the most important meeting this week, as we discussed here).  
As for earnings, by Friday afternoon we will have heard from about half of the S&P 500 on Q2 performance.  Remember, we came into this earnings season with a low expectations bar already set.  In fact, this quarter was expected to be the trough in earnings growth, of this tightening cycle.  
With that, low expectations for earnings create the opportunity for positive surprises.  And positive surprises become more probable when you consider that the consensus view on the economy for Q2 was at just 1% (annual rate), when economists were polled in the middle of the quarter.  
That view has since been ratcheted up to 1.7%. 
We'll get a "preliminary" GDP report on Thursday.  Keep in mind, the Atlanta Fed model, which is still incorporating Q2 data, is at 2.4% (much higher than the economist community has been)
This, too, is set up for a positive surprise. 
All of this, as the Fed should be ending the tightening cycle on Wednesday, with one final "insurance" hike.  Meanwhile, China is stepping up support for its economy.  This combination should serve as a positive catalyst for confidence and manufacturing activity, both of which have drags on the economic outlook.
Now, a final note on the "big three" earnings this week …
This is the first time we'll hear from the "big tech" oligopoly (in an earnings call), since Nvidia declared generative AI to be "the beginning of a major technology era" in its May earnings call.
All three (GOOG, META and MSFT) have invested heavily in generative AI, and have huge roles to play.  The moat is wide.
PS:  I'd like to invite you to join my new subscription service, the AI-Innovation Portfolio.  We've added four exciting stocks that will play key roles in the technological transformation of the world's data centers. Join here, and I’ll send you all of the details.