Market Overview

28 July 2021

Earnings of Tech Giants Are Driving the Rally Again

More corporate earnings updates from the market's world-known issuers, followed by CEOs conference calls - as it usually happens - wore ruts in the fundamental background road of the week. None of them tried to eclipse the overall sunny sentiment with even one cloud. 

Tesla, the pioneer mass manufacturer of electric vehicles, broke its own delivery record by building and shipping more than 200,000 vehicles during the second quarter. That was as much as 151% growth over last year. The company also added nearly 1,000 supercharging stations to its network. Elon Musk's brainchild also earned more than $1 billion in net income for the first time in its history, on the best-ever revenue of $11.96 billion, which was far beyond the average result of about $10.56 in the previous two quarters and 3.7% better than the forecasts in Reuters analysts' polls. 

In recent months, the media constantly tried to bring out the alleged dependence of Tesla’s financial matters on investments in Bitcoins, especially after the company first started to accept payments in Bitcoins and then stopped it. Yet, a Bitcoin-related impairment happened to be $23 million only, so the budget of Tesla did not suffer much from the issue. By the way, Elon Musk said Bitcoin is "shifting a lot more toward renewables and a bunch of the heavy-duty coal plants that were being used...have been shut down, especially in China,” last Wednesday at the so-called "B-Word" conference, while adding that he wanted to do "a little more due diligence to confirm that the percentage of renewable energy usage is most likely at or above 50% and that there is a trend toward increasing that number" and "if so, Tesla will most likely resume accepting bitcoin”. 

All his contradictory statements on using or not-using Bitcoin seem to become a speculative tool in his mouth, as two largest companies founded by Mask, Tesla and SpaceX, are not going to sell any parts of its assets, including Bitcoins, according to his words. But the market probably doesn't have many worries of this kind while concentrating more attention on the rising competition from the side of other electric vehicle intentions of such Tesla's rivals like General Motors in the United States which is eager to change all the motor engines with electric accumulators before 2035, or Volkswagen and Stellantis in Europe. Several producers are trying to share the enormous Chinese market of electric autos too. 

This global trend cannot help but take a toll on Tesla dynamics of capitalisation. Therefore, the share's price for Tesla did not change significantly on Tuesday, even after the brilliant Q2 report just a day before, still balancing nearly 3.5% up and down around a $650 level. Similar technical patterns are observed on the price charts of several other giant companies that have managed to report most successfully since the beginning of the week, although predominantly neutral or even limited downside reaction of the shares' price rather happened in most cases due to the prices running too quickly ahead already on positive expectations beforehand. 

For example, Apple reported in mid-July that the company has asked its suppliers for 90 million iPhones this year, which means a 20% jump from all its shipments in 2020. Initial run of new iPhone devices usually hovered around 75 million units from the time of its launch through to the end of the year. The 5G functional is attracting more demand, but all this information was already exposed two weeks before the regular financial report, so that Apple stocks had enough time to set a fresh price record near $150 per share twice this month, on July 15 and July 26. 

Therefore, even very positive actual financial figures for Q2 2021 of $1.3 equity per share (EPS) on revenue of $81.43 billion, which were much better than the average expectations in analysts' polls of just $1.01 EPS on revenue of $73.26, did not immediately inspire the market once again. Apple shares were about 1.5% lower before the end of Tuesday's session, and they are trading today on the pre-market even near $145 per share. However, a clear base scenario is that the buying any dips tactic will highly likely prevail and the quotes may recover within a few days even with good chances to update the previous peaks, as it is regularly happening this summer. 

A similar "buy rumours, sell facts" story is going on with Microsoft, whose shares propped up the $290 mark just a couple of trading sessions ago, after last week when they traded below $275, and only six weeks ago they jumped above $250 per share only for the second time. More than 16% growth in Microsoft shares over this short period turned out to be too fast and already included all good things, which were then only confirmed in the report when yesterday evening Microsoft officially announced its best-ever EPS of $2.17 on revenue of also best-ever $46.15 billion. Analysts' polls anticipated EPS of $1.91 on revenue of $44.06 billion. By the way, its Azure cloud business sold servers and equipment for the record quarter volumes of $17.3 billion, up from $13.4 billion last year. 

However, the market crowd probably expected all the record setting financial indicators already and even dropped the prices around 2% lower soon after the market's opening bell. Yet, the price then recovered to 0.87% loss "only". Such a typical reaction may show that the investment community just needs more time to adapt to new price levels and higher financial standards, just exactly as it happened before with Amazon or Google prices. The shares of both big techs used to touch new record highs first, then usually rebounded back to more humble price levels, but finally climbed to much higher levels after digesting all its previous movements. Step by step, Amazon was going ahead to set new highs just a couple of weeks before, after several months of generally upside or sideward range. 

The Amazon report has yet to be released before the end of the week, while Google already reported and is now trying to consolidate above its new support level of $2700 just a day after hitting new highs of nearly $2800 per share. The step-by-step rally of tech giants, where the actual success of one big company fuels the hopes for the proposed success of others, drags stock indexes higher and higher as a result.

 

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