Market sentiment/Company comments reflect the bifurcated economy

Before we get to all the most notable earnings news, let's start with stock market sentiment with the correction going on. As it always seems to be, when the mood gets very one sided, its most likely that the trade shifts the other way and this time was no different. That said, the extreme bullishness seen last month that was the perfect contrarian set up for a pullback has cooled down. Investors Intelligence yesterday said Bulls fell to 46.2 from 56.5 while Bears were up by 7 pts to 21.5. As stated here many times, a spread over 40 is considered extreme and we got to almost 50. AAII today said Bulls fell for a 4th week, by 6.2 pts to 32.1 which is the least since early November. They all went to the Neutral side though as Bears were little changed at 33.9, holding at the highest since early November. The CNN Fear/Greed index closed yesterday at 40, in the Fear camp and it was 33 one week ago. The Citi Panic/Euphoria index remains in Euphoria as of last weekend at .43 but that moves more slowly. 

Bottom line, now that the pendulum is swinging in the other, less bullish direction, we eventually then set us up for a rally with the timing and level from which to be determined. 

The earnings comments below still point to a lot of moving parts with pockets of strength and those seeing weakness.

The generative AI hype machine is now broken. Attention is now on the massive capital spending needed to build out large language models, the uncertain returns and timing on this investment and the intense competition from not just the other huge companies but from so many scrappy smaller ones too. 

From Meta:

"As we're scaling CapEx and energy expenses for AI, we'll continue focusing on operating the rest of our company efficiently. But realistically, even with shifting many of our existing resources to focus on AI, we'll still grow our investment envelope meaningfully before we make much revenue from some of these new products. I think it's worth calling that out, that we've historically seen a lot of volatility in our stock during this phase of our product playbook, where we're investing and scaling a new product but aren't yet monetizing it."

"in addition to our work on AI, our other long-term focus is the metaverse" and we know that's been expensive too. "For Reality Labs, we continue to expect operating losses to increase meaningfully y/o/y due to our ongoing product development efforts and our investments to further scale our ecosystem."

On their add business, likely helped by Shein and Temu, "the online commerce vertical was the largest contributor to y/o/y growth, followed by gaming and entertainment and media. On a user geography basis, ad revenue growth was strongest in rest of world and Europe at 40% and 33% respectively. Asia Pacific grew 25% and North America grew 22%."

With their outlook, "we remain pleased with engagement trends and have strong momentum across our product priorities...Video also continues to grow across our platform, and it now represents more than 60% of time on both Facebook and Instagram." They are also improving their "monetization efficiency."

On guidance, "we aren't giving full year 2024 guidance. And obviously, our revenue for the full year will be influenced by many factors, including macro conditions and things that are harder to predict the further out you go."

Here were some macro comments from IBM:

"We expect the global economy to behave similarly to last year, albeit with some uncertainty due to persistently high interest rates. There are reasons to believe technology will be even more important in 2024 as clients focus on productivity improvements and customer experience." Of course they mentioned AI as part of driving productivity. 

On their outlook for 2024 where they maintained their revenue and cash flow guidance, they see a solid start to the year in their software business but in consulting, "we are seeing some pressure on smaller, more discretionary projects" and overall see mid single digit growth in this division. I think this is what is contributing to the stock weakness this morning. 

Because of the strength of the US dollar, they see a 150 to 200 bps FX clip to earnings growth this year. 

In case you missed it, the Dow Jones Transportation index yesterday was down 2.3% with an 11% drop on Old Dominion leading the way followed by softness in the rails and airlines.

Old Dominion said that their "financial results improved during the 1st quarter of 2024, despite the continued softness in the domestic economy."