A flip-flop markets into earnings season

It was a mixed-signal trading session. Equity markets were broadly lower in regular trading hours only to recover in after-hours, when the release of Alphabet and Microsoft earnings soothed the unease markets.

A more than 10% drop in Meta Platforms hurt stocks and caused many communication services companies to fall in sympathy. Without clear directions for AI revenue, most technology companies are gearing up spending on AI infrastructure, resulting in higher capex expenditures expected for the next few quarters.

Then came the GDP data released by the Bureau of Economic Analysis. The growth of 1.6% was far lower than the 2.2% expectation. This caused initial panic as investors grappled with stagflation: mild growth and sticky inflation.

Peeling off the critical data showed that the economy wasn’t as gloomy as the lower growth suggests. While consumer spending growth had eased from 3.3% in the fourth quarter to the current 2.5%, there is robust spending in services, which jumped 4%, offset by a fall of 0.4% in goods consumption.

In other areas, private domestic investment rose 3.2%, supported by construction and house purchases. This is a jump from a mere 0.7% in the fourth quarter. Hence, hidden beneath the data is still a reflection of strength, and the economy is still powering ahead.

🎯Microsoft: AI boost optimistic prospect🥁

The 31% Azure growth sent stocks higher after-hours, an acceleration from the 30% growth last quarter. Part of this growth comes from AI, which represents 7%. Revenue was up 17% compared to a year ago, a clear beat on consensus.

🛎Alphabet: Maturing growth but nimble like a tech startup💰

The search engine giant’s equally strong showing was revenue rising 15%. Earnings per share of $1.89 were mindblowing, given the expectation of only $1.51. Adding sugar to the dance is the announcement of its first dividend, though tiny, which is a sweet treat for investment.

The $70 billion stock purchase program is a blast of fireworks for long-term investors, who are seeing some work on the balance sheet. If the rise in stock price holds, Alphabet will hit a $2 trillion market tomorrow.

We will now head to the PCE data release at 8:30 p.m. tonight. Until then, enjoy the roller coaster ride.