Markets Today: Focus Back On Earnings
Wall Street is once again focusing on the main fundamentals as traders are less concerned about the Middle East. Now that those concerns are very much over, the focus among traders and investors is what the tech earnings will do to the US stock indices, especially the Nasdaq, which recorded its steepest weekly loss of over 5.5% in more than 5 months. The stocks that pushed the stock market to its all-time high, such as Nvidia and Tesla, have tanked over 14% as investors saw the Middle East tensions as an opportunity to book some profit off the table.
The US stock indexes, without any shadow of a doubt, not only had a great start to the year, but they also recorded stellar performance for the quarter. But when Israil attacked the Iranian embassy, things began to go off the rails as investors became increasingly cautious that things could go too far, which they did to a certain extent when Iran launched its retaliatory direct attack on Israil. However, cool heads did prevail, and tensions did not escalate after the Israil’s attack on the Iranian city of Isfahan. From there onwards, investors and traders once again shifted their focus away from the escalating geopolitics, and all the spotlight came on the US earnings—and there is perhaps nothing bigger than the US earnings, which is making traders concerned now with respect to the performance of Magnificent Seven.
Starting today, traders will focus once again on the AI gold rush, with Tesla announcing its earnings and the Nasdaq index dancing on the back of it. Traders have already heavily punished the stock, causing it to sit at its multi-month lows. This is because the company has not only announced layoffs, indicating a slowdown in its demand equation, but has also reduced prices for some of its products, confirming the fierce competition. To remain competitive, the company must take action.
The important thing to note here is that traders and investors need to zoom out a little, and they need to understand that layoffs are good in terms of operations as they make the company’s overhead less when demand isn’t strong enough to support that extra labor. And cutting costs is the way to answer the growing competition because Tesla’s monopoly that it had once upon a time is no longer there as new players have made the competition much more intense. Nonetheless, something that Tesla TSLA still holds in a very unique position is its data on self-driving, which no other car maker has in that quantity as Tesla had a much longer head start. So, the question and focus will be on these innovative areas in today’s earnings.
Investors are likely to become more cautious due to the company’s first year-over-year revenue decline since 2020, as the shares have fallen over 43% YTD. If earnings fail to respond today, we could see the price dropping further, which would drag the Nasdaq index further lower.
The Nasdaq index, which is already sitting near the lows of the year after recording its worst weekly loss since November last week, is more than likely to face a highly volatile session this week. The levels shown on the chart below are likely to govern traders’ sentiment. Despite the price drop, the chart below shows that the price is still in an upward trend, and the big buyers could be stepping in near support level 1, if not level 2. As long as the index is trading above its upward trend line, the upside momentum is likely to resume.
