Stock Market: Microsoft Earnings Preview

♦Microsoft Earnings Preview♦

Stock Market —- Microsoft Stock Forecast 2020

* Reports Q2, 2020 results on Wednesday Jan. 29, after the market close

* Revenue Expectation: $35.67 billion

* EPS Expectation: $1.32

When Microsoft Corporation (NASDAQ:MSFT) releases its latest quarterly earnings today, it will provide investors with confidence that one of the bull market’s dominant bets remains intact.

Following a massive transformation under its Chief Executive Satya Nadella, Microsoft has become one of the most powerful players in the fast-growing cloud-computing market, commanding the segment’s second largest market share, with only (NASDAQ:AMZN) ahead.

More than five years ago, Nadella began to diversify Microsoft’s revenue away from its traditional growth engines — Windows and Office — by investing heavily in data centers and other infrastructure to help corporate customers run applications and store their data.

The growth in this market continues unabated for Microsoft, powering its operating income. For the quarter that ended on Dec. 31, analysts’ consensus forecast expects that Microsoft will produce about 10% growth in sales, while profit should surge by 20% to $1.32 a share.

Revenue from the company’s Azure cloud services rose 59% in the previous period, while sales of the subscription-based Office 365 for corporate customers, Microsoft’s other major cloud business, jumped 25%. Microsoft’s Intelligent Cloud segment now comprises more than 30% of the company’s overall revenue base.

We believe this strength will once again be on display as the company continues to win both large and small clients. In October, the Pentagon awarded Microsoft the Joint Enterprise Defense Infrastructure, or JEDI, contract that could be worth up to $10 billion over the next decade.

Large Cloud Deals Keep Coming
Microsoft’s win for this large government work shows that how quickly the Redmond, Washington-based company is capturing market share, posing a serious threat to Amazon’s dominance.

The latest deal comes after many large brands signed agreements to use Microsoft’s Azure cloud software, including grocer Kroger Company (NYSE:KR), AT&T Inc (NYSE:T), Walgreens Boots Alliance (NASDAQ:WBA) and oil giant Exxon Mobil (NYSE:XOM).

These contracts provided most of the fuel for the powerful rally in Microsoft shares in the past year, setting it apart from other large-cap legacy tech companies, such as International Business Machines (NYSE:IBM).

Microsoft shares—which closed yesterday at $165.46—are up more than 50% in the past year. This leap has pushed the company’s market value to $1.26 trillion, making it one of the world’s most valuable corporations.

The big question for investors now is how far can this rally go? At almost 31 times forward earnings, Microsoft’s shares are selling at a premium when compared to many top tech stocks. They also carry the highest multiple the stock has commanded in more than 15 years.

In our view, the factors that supported Microsoft shares over the past 12 months are still very much in play. The cloud computing market is expected to grow from $285 billion in 2017 to $411 billion by 2020. That segment alone is big enough to drive the company’s revenue growth for the next three to four years, according to Microsoft executives.

Coupled with cloud momentum, the tech giant is also benefiting from strong PC sales. Fourth-quarter sales of personal computers were the best the industry has seen in years, according to data released last week by market research firms IDC and Gartner.

Bottom Line

As investors fret about the global economic outlook and the longevity of this bull cycle, Microsoft’s fundamentals make it a safe bet in the tech space. We believe Microsoft’s earnings momentum will continue as it expands its market share in the cloud computing segment while maintaining its leading position in legacy software products such as Windows and Office.

This durable advantage will help the company achieve sustained, double-digit growth in revenue, earnings per share and free cash flow, making it a reliable tech stock to own over the long term.


Microsoft Stock Forecast 2020

Stock Market: Economic Calendar – Top 5 Things to Watch This Week

Stock Market — Here’s what you need to know to start your week.

Coronavirus outbreak
Market participants are keeping a wary eye on developments surrounding the coronavirus outbreak which has infected more than 2,000 people, the vast majority in China where 56 people have died. The virus has also spread to the U.S., Thailand, South Korea, Japan, Australia, France and Canada.

With stocks close to all-time highs investors are fearful that the newly identified virus could develop into something worse, like the 2003 SARS epidemic.

“Markets hate uncertainty and the virus has been enough to inject uncertainty in the markets,” said David Carter, chief investment officer at Lenox Wealth Advisors in New York.

The World Health Organization has stopped short of calling the outbreak a global health emergency, but some health experts question whether China can continue to contain the epidemic.

More FAANG results
While last week’s Q4 earnings from Netflix (NASDAQ:NFLX) underwhelmed Wall Street, analyst hopes are still high for the other FAANGs – Facebook (NASDAQ:FB), Apple (NASDAQ:AAPL), Amazon (NASDAQ:AMZN) and Google parent Alphabet (NASDAQ:GOOGL) – ahead of their financial results for the quarter.

The FAANG group of U.S. tech stocks have been the biggest drivers of the bull market, with recent gains among most of the group far outstripping the broader market.

Facebook is expected to post earnings growth of 6.2% when it reports on Wednesday, while Apple earnings, due a day earlier, are forecast to have grown 8.7%. Amazon has warned that increased investment in its package delivery business in the last quarter will weigh on earnings, but it sees quarterly revenues up 18.7% when it reports on Thursday.

In comparison, the S&P 500’s fourth-quarter earnings are expected to decline 0.8% and revenue is seen rising 4.4%, according the latest estimates compiled by Refinitiv.

Fed meeting
The Fed will almost certainly keep monetary policy on hold on Wednesday as policymakers continue to assess how the three rate cuts from 2019 are percolating through the economy.

“With no new forecasts being released at this meeting it will be the tone of Jerome Powell’s press conference and the actual vote that is likely to be of most interest for markets,” said James Knightley, chief international economist at ING.

“We would also expect to hear Jerome Powell retaining his cautiously upbeat language, particularly given the positive conclusion to U.S.-China trade talks. He is likely to reiterate that we will need to see a “material change” for the Fed to consider a policy shift.”

Bank of England meeting
The BoE is to deliver its final monetary policy decision before Britain exits the EU on Jan 31 on Thursday and the meeting will be Mark Carney’s last as central bank governor.

The question is whether the BoE will join central bank peers in cutting interest rates. Economic growth and inflation took a hit from three-and-a-half years of Brexit uncertainty so a recent string of dismal data and comments by BoE officials, including Carney, that more economic stimulus might be needed saw rate cut expectations surge.

But economic data last week pointed to a post-election boost, leading markets to pare back expectations for a cut.

The future path of the British pound, currently trading at around $1.31, in the middle of its trading range so far in 2020 – hangs on the BoE’s decision and forecasts for whether the economy will find more momentum after Brexit.

GDP figures
The U.S. is to release advance fourth quarter GDP figures on Thursday, with analysts forecasting growth of 2.1%. U.S. President Donald Trump might repeat his argument that if it were not for Fed policy tightening, growth would be closer to 4%.

The Euro Zone is to release GDP data on Friday, which is forecast to show the economy expanded 0.2% from the previous three months, backing up the European Central Bank’s view of “ongoing, but moderate growth.”

⇑⇓ Today’s Stock Market Quotes ⇓⇑

Stock Market: This May Be The Most Important Week So Far In 2020

Stock Market — The week ahead is arguably the most important here at the start of 2020. The Federal Reserve and the Bank of England meet. The U.S. and the eurozone report initial estimates of Q4 19 GDP. The eurozone also reports its preliminary estimate of January CPI. China returns from the extended Lunar New Year celebration and reports its official PMI. Japan will report December retail sales and industrial production. These data points will provide insight into the state of the recovery from the October sales tax and typhoon.

Fears of the spread of a new virus from China and the potential economic impact weighed on risk-taking appetites last week. It is still early days, but the contagion rate appears to be tracking something close to SARS, which ended up slashing Chinese growth by two percentage points. China and Hong Kong equity markets were hit the hardest (3%+), the S&P 500’s decline of a little more than 1%, was only the fourth weekly loss but the largest since the end of Q3 ’19.

China reports the newest PMI readings on January 30. The impact of the coronavirus may not be picked up entirely in the data, which will not offer a clean read on the economy due to the Lunar New Year. To the extent that the virus impact is detected, it will likely hit services harder that manufactured goods in the first instance. That said, January manufacturing and non-manufacturing PMI are expected to have softened a little (50.2 and 53.5, respectively in December). The risk is that the economic disruption will offset the stimulus recently provided. The magnitude of the commitment to buy U.S. goods was already a stretch, according to some estimates, and weaker Chinese growth could provide another hurdle.

It has been widely reported that China committed to buying $200 bln more U.S. goods than the $128 bln purchased in 2017, the last year before the tariffs. However, last year, the U.S. exports to China were about $98 bln. So, compared with 2019, China has committed to buying $230 bln more U.S. goods. China will likely import a bit more than $2 trillion of goods and services this year. The political agreement appears to secure for the U.S. a little more than 15% of that market.

With a press conference after every FOMC meeting, and given Powell’s perceived communication challenges, it is difficult to say that the January 29 meeting is a non-event. Still, for all practical purposes, it is. There is scope for a small technical adjustment. The Fed pays 1.55% interest on both required and excess reserves. It could raise this by five basis points to ensure the fed funds rate remains within the 1.50%-1.75% target range. Many who think the Fed’s bill buying and repo operations represent an easing of monetary policy (as in QE), may argue that the Fed is tightening. However, most will likely conclude that it would be a technical adjustment and not a change in monetary policy proper.

The forecasts will not be updated until March, and the economy has not materially deviated from Fed expectations. Last year, some media reports played up the two persistent dissents against the series of rate cuts and argued Powell was losing control. However, this does not seem to be the case, and indeed a clear consensus has emerged. At the December meeting, 14 of the 17 officials thought no rate change would be needed this year.

Near-term downside risks have lessened. The U.S.-China trade deal may not deserve the embellished official descriptions, but an escalation in the coming months seems less likely than even a couple of months ago. The UK will leave the EU at the end of January for an 11-month standstill arrangement where nothing changes while a new trade deal is negotiated. The risk of a disruptive no-deal exit at the end of the year remains, but it is not yet pressing. Nevertheless, the implied yield of the December 2020 fed funds futures contract is near 1.30% compared with the current average of 1.55%, suggesting a 25 bp Fed cut has been discounted.

The Bank of England is a different story. Two members of the Monetary Policy Committee have dissented at the past couple of meetings in favor of an immediate rate cut. Two other members have indicated if the data did not improve, they too could support a rate reduction. BOE Governor Carney also sounded more dovish in recent comments. The January 30 BOE meeting will be the last Carney chairs. Andrew Baily will take the reins before the next meeting on March 26.

The official comments and the disappointing economic data has spurred a shift in market expectations. On January 10, the derivatives market implied a little less than a one-in-four chance of a rate cut on January 30. By January 17, the odds jumped to almost three-in-four. But sentiment swung back last week, and the odds narrowed to a little less than 50/50. It is a close call, and on balance, the resilience of the labor market, the recovery in business confidence, and the uptick in the PMI may keep the BOE on hold a bit longer. If this is indeed the case, sterling may pop higher, though ideas that lower rates can still be delivered later in H1 may limit the upside.

Quarterly GDP numbers often grab the headline, but for many investors, the report is a culmination of other high-frequency data with some variance. Moreover, GDP data is backward-looking. It is then more a favorite of economists than market participants. That said, the mixed signals of the U.S. economy make this GDP call particularly tricky, and the first estimate is subject to statistically significant revisions, often stemming from trade and inventories. The NY Fed’s GDP tracker (as of January 17) pointed to a sub-par 1.2% annualized pace. The Atlanta Fed’s model pointed to a 1.8% pace. The Bloomberg survey has a median forecast of 2.1%.

The composition of U.S. growth may have also changed. Consumption may have slowed from the 3.2% annualized pace in Q3. Residential investment appears to have risen, and trade also may have made a net positive contribution. The headline and core deflator are likely to be mostly steady. The Federal Reserve will look through just about any weakness in Q4 GDP and will make allowances for the production cuts at Boeing Co (NYSE:BA) in Q1 20. The case of a rate cut is based on ideas that record-long U.S. expansion is fragile and will have increasing difficulty coping with shocks. The lack of pick-up in early Q2 will leave the Fed with the same choice as last year. With price pressures subdued, another insurance policy can be taken out to boost the chances that the expansion can be extended.

Eurozone Q4 GDP seems easier to forecast. Growth has been relatively steady, with quarterly growth averaging about 0.3% for the past four quarters and 0.2% for the previous two. The year-over-year pace has been about 1.2% over the same period. It may not be very inspiring, but it is steady, and growth potential is probably only a little higher at around 1.5% or so. Market participants appear to be more confident that the ECB is on hold for the duration that it is of the Fed. The market sees only about a one-in-five chance of a rate cut by the ECB this year.

Perhaps the most challenging data point for investors to make sense of will be the initial estimate of the eurozone’s January consumer inflation. Prices fall in January. Last January, prices fell by 1%. That means that if prices fell by 0.9% this month, as economists forecast, the year-over-year rate will tick up. Indeed, the year-over-year rate is expected to rise to 1.4%. It would be the highest since last April. This is one reason why claims of Japanification of Europe are too simplistic: European inflation is nearly twice that of Japan’s. However, while we anticipate a base-effect rise in European CPI, the comparisons are not as friendly, and the true signal, as likely to be reflected in the core rate that may ease to 1.2% after being stuck at 1.3% in November and December.

Lastly, we turn to Japan. The issue at hand is how quickly it can rebound from the controversial sales tax increase and the typhoons. The most direct report will be retail sales. Recall the sequence of events. Anticipating the tax increase in October, consumers brought forward purchases, and August retail sales rose by 4.6% and then 7.2%, before plummeting 14.2% in October. They snapped back 4.5% in November and probably a little more than 1% in December.

Industrial output fell by 4.5% in October and another 1% in November. A small rise of around 0.7% is expected in December. Yet, in terms of the yen, these macro considerations seem to be of secondary importance. The heightened anxiety over the new coronavirus expressed through the sale of risk-off assets, and the unwinding of carry-trades and those speculators knowingly or unknowingly riding this wave is the primary driver now as the dollar’s advance was stalling around JPY110.25.

The coronavirus is an economic and financial shock. The extent of that shock still needs to be assessed but it could provide the spark for an arguably long-overdue adjustment in the capital markets. Investors may be risk-averse until there is greater transparency about the contagion rate and health risks. It is humbling to appreciate that despite the advances in science and medicine, some 80k Americans died in 2017-2018 from influenza, the highest toll in 40 years. The World Health Organization estimates that the annual flu epidemic kills between around 250k-500k people globally each year.


◊ Plus500 Review 2020 ◊


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The company offers access to a comprehensive product line including forex, stock indexes, equities, commoditiescryptocurrencies, ETFs and options. Plus500 is the first broker to introduce a bitcoin CFD in 2013. The company does not charge commissions on any of its trades.

All costs are contained within the spread for each of more than 2,000 trading instruments offered on Plus500’s WebTrader platformPlus500 Ltd. (PLUS.L) is a publicly traded company on the AIM section of the London Stock Exchange since 2013 with a £1.73 billion ($2.25 billion) market capitalization and clients in more than 50 countries around the world. Plus500 offers access to more than 2,000 trading instruments.


Trust … the company is registered with the Financial Conduct Authority (FCA), CySEC, ASIC, FSCA, FMA, MAS, and the ISA, which provides good accountability and visibility. The company is required to take steps to ensure client funds are not comingled with corporate funds – ensuring that client money and assets are protected in the unlikely event that Plus500 becomes insolvent – by holding those funds in segregated accounts at regulated banks.

If Plus500 defaults, any shortfall of funds of up to £50,000 may be compensated for under the Financial Services Compensation Scheme (FSCS). If the custodian bank holding client funds goes into liquidation, any shortfall of funds of up to £85,000 may be compensated for under the FSCS.

Plus500 also offers Negative Balance Protection, ensuring that clients cannot lose more than they have put into their account. Guaranteed stop losses can be used on some instruments depending on market conditions but they are subject to a wider spread.

The company does not charge commissions on any of its trades. All costs are contained within the spread for each of more than 2,000 trading instruments offered on Plus500’s WebTrader platform. Large volume traders do not get a trading discount at Plus500 and the spread is the same whether you trade one lot or 1,000 lots.


There are no charges for normal withdrawals or terminating an account. However, inactivity fees kick in after an account has been idle for three months. Beginning traders can open an account with as little as £100.

Traders can qualify for a “professional” account, which offers a higher level of maximum leverage, but the costs are the same. Investors with a professional account may increase their maximum leverage ten-fold, from 1:30 to 1:300.Spreads at Plus500 were some of the lowest in the market.

Plus500 also offers access to options trading on many markets. These are very similar to plain call and put options traded on exchanges, but they are not standardized which means that the option premium can be customized for your risk tolerance and strategy objectives.



2 thoughts on “Stock Market: Microsoft Earnings Preview

  1. Pingback: Stock Market: Microsoft Earnings Preview -

  2. Pingback: Stock Market: Microsoft Earnings Preview via /r/economy | Chet Wang

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