The Great Rotation Is as Real as Ever
Bull markets thrive on this type of activity.
A glance at the end-of-day numbers for the S&P 500, the Dow Jones Industrial Average, and the Nasdaq Composite would tell you it was a run-of-the mill flat-to-down day in the stock market.And then, again, there’s the Russell 2000 putting up a 1.02 percent gain to once more outperform its big-cap brethren.
Tom Lee, the co-founder and head of research at Fundstrat Global Advisors, said on CNBC Tuesday that the small-cap rally could extend out to 40 percent off the lows by the end of the summer.
Lee expects this major rotation from Big Tech that’s seen the Russell 2000 rally nearly 10 percent over the last 10 trading sessions while the Nasdaq was shedding about 3 percent to continue.
Such a development is probably long-term bullish for equities generally, as it reflects confidence in the underlying businesses of the companies that ground the US economy.
Still, we simply can’t afford to overlook companies like Alphabet $GOOGL and Tesla $TSLA, especially when they report earnings and comment on their prospects.
The latter generated more than $10 billion in quarterly sales and exceeded $1 billion in operating profit for the first time.
Ad sales were up 11 percent to $64.62 billion, an encouraging development after inflation and interest rates took big bites out of marketing budgets in 2022 and 2023, though YouTube ad sales were short of analyst expectations.
Earnings per share of $1.89 topped an estimate of $1.84.
GOOGL was down more than 1 percent in after-market trading on Tuesday evening.
Tesla, meanwhile, once again reported weaker-than-expected numbers, with EV sales down for a second straight quarter.
TSLA was down more than 4 percent in the after-market. EPS of $0.52 were short of the $0.62 Wall Street forecast.
Revenue was up 2 percent to $25.50 billion, slightly ahead of the consensus estimate, though automotive sales were down 7 percent to $19.9 billion. That includes regulatory credits of $890 million, more than three times the year-ago total.
On the plus side, Tesla deployed 9.4 gigawatt hours of energy storage during the quarter, and revenue for that business doubled compared to the second quarter of 2023.
Management had said storage would grow faster than EV sales.
That’s one thing those guys have nailed.
Elsewhere on the earnings front Spotify $SPOT beat expectations and traded up nearly 12 percent during regular trading hours.
But UPS $UPS had its worst day in the market in a quarter century, falling more than 12 percent, amid a stalled turnaround plan.
Management trimmed full-year sales and earnings guidance, a point of concern from a macro perspective given the parcel giant’s role in the economy.
General Motors $GM managed to beat expectations but still got hammered, trading more than 6 percent lower after management reported a second-quarter operating profit of $4.4 billion and earnings per share of $3.06.
Wall Street forecast operating profit of $3.9 billion and EPS of $2.71.
Management also boosted its full-year operating profit guidance range to $13 billion to $15 billion from $12.5 billion to $14.5 billion.
Perhaps the good news was already priced in to GM.
