So much for a boost from record revenues. Despite the good results of the tech giants Apple (NASDAQ: AAPL) and Microsoft (NASDAQ: MSFT), Visa (NYSE: V) declaring a volume of payments greater than 2019 levels (all reported after market close on Tuesday) and a big beat from the aerospace giant Boeing (NYSE: BA) this morning, as jet controls slowly resume, the Dow Jones Industrial Average (DJINDICES: ^ DJI) is down 121 points as of 1:24 p.m. EDT on July 28. Nasdaq Composite and Russel 2000 indices are on the rise today.
So what gives? In short, the Dow Jones is an index of American stocks. And despite Boeing’s big gains, with shares up 5% after earnings, investors fear growth at Apple and Microsoft – along with many other U.S. companies – could slow. The Nasdaq and the Russell 2000, however, contain many international stocks, including many Chinese stocks that have taken a heavy hit in the past few days. Many of those stocks are on the rise today, recouping some losses as investors seek opportunities after a multi-day sell-off in Chinese tech and education stocks.
The two sides of the earnings of Apple, Microsoft and Visa
Apple reported another record quarter, with revenue up 36% to $ 75.3 billion and net income of $ 21.7 billion, almost double. It was an absolute crush, beating expectations of $ 72.9 billion in revenue and earnings per share of $ 0.81, versus actual EPS of $ 1.30. Yet, at the time of this writing, stocks were down almost 2%.
For Microsoft, the results have also been stellar. Revenue of $ 46.2 billion was 21% higher than a year ago, while earnings of $ 2.17 per share were up 49%. This represents an acceleration in sales from the previous quarter, especially the intelligent cloud segment, which is by far Microsoft’s largest company right now and growing 30%. Microsoft shares are down slightly as of this writing.
Visa has also delivered incredible results, although the bar is lower as the credit card and electronic payment processor were “rolling” in a period last year that was significantly slowed down by the coronavirus pandemic. Net revenue of $ 6.1 billion increased 27%, while profit rose 10% to $ 1.18 per share. After adjusting for some non-recurring items, Visa said adjusted earnings were $ 1.49 per share, up 41%. Transactions processed increased by 39%, while the volume of payments increased by 34%. Cross-border volume – a key metric for Visa and its peers – increased by 47%.
Visa also said its payment volume in the United States is now above 2019 levels. However, monthly cross-border volume is still down significantly, reaching just over 90% of 2019 levels at constant exchange rates, while that the non-intra-Europe cross-border monthly volume is closer to 80% of 2019 levels. In other words, there is still significant leeway to bring Visa’s total transaction volumes back to pre-pandemic levels .
Add it all up and it looks like investors just aren’t convinced that the incredible growth rates we’ve seen over the past few quarters are going to continue.
Why Boeing gets the market vote as the best Dow Jones reopening stock today
With stocks up 5% after this morning’s earnings release, investors are watching Boeing’s results and see an opportunity for stocks to continue to advance. Boeing posted adjusted earnings of $ 0.40 per share, surprising investors who expected the ailing aircraft maker to report another loss. Much of its improved result was linked to the consistent return of the 737 MAX. Boeing reported 219 firm orders for new commercial jets in June alone and, since being able to return the 737 MAX to service, has delivered more than 130 of those jets to airlines.
Add it up, and investors seem to prefer Boeing’s turnaround story over the continued growth story for the other stocks discussed.
What investors should expect in the future
In short, volatility. It’s a big week for earnings, with a third of the Dow Jones’ stock and much of the S&P 500 also announcing results, which will lead to higher than normal trading volumes and volatility. It’s just part of the winning season.
The best suggestion I can offer investors at this time of each quarter is to focus on the trading results and think about the long term implications; it is simply difficult for individual investors who do not spend a lot of time and resources to make money trading stocks on short term factors like earnings.
Profits are important, but not as a business opportunity. For example, as the market focused on Boeing’s recent pick-up in orders and a surprise adjusted profit, its backlog, on a report base, after adjusting for all cancellations, only increased by just over 50 devices this year. Additionally, commercial air travel is unlikely to return to 2019 levels until 2023 at the earliest; Boeing has a lot of work to do to return to its previous profitability and market value. Apple, Microsoft and Visa, on the other hand, are showing strong if not record results, and their path to consistently strong earnings and cash flow is much clearer.
Be aware of these implications when investing, and don’t make it harder than it should be. Mister Market does not reward bonus winnings for the degree of difficulty.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Questioning an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.