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Chart Advisor: Dissipating Fear


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Friday, 27th August, 2021

1/ Fed eases fears as investors bid indexes higher 

2/ Workday’s optimism spills over to investors 

3/ Marvell holds ground despite selling  

4/ The bottom line

1/ Fed Eases Fears as Investors Bid Indexes Higher 

Stock prices soared in wake of the Fed Powell’s speech. The more hawkish tone set by other members yesterday was alleviated by some particular wording from Chair Powell.  “It could be appropriate to start a taper this year” Powell said. This was seen as a soft stance. Traders were keen to pay attention to this as tapering is the first step toward raising interest rates. Powell also warned against an “ill-timed policy move… with substantial slack remaining in the labor market and the pandemic continuing, such a mistake could be particularly harmful.” A hard timeline for a rate hike continues to be elusive. As such, many investors are happy to buy. 

All the major ETFs jumped in price following the initial statement. State Street’s S&P 500 Index ETF (SPY) rose $2.00 per share during the first 15 minutes and now sits just under 1% on the day.  iShares’ Russell 2000 ETF (IWM) had the biggest move following the news. The index is up nearly 3% on the day but is still well within its year-long range.   

2/ Workday’s Optimism Spills Over to Investors 

 Investors sent Workday (WDAY) share prices higher after the company not only beat analysts’ earnings expectations but offered higher than expected revenue guidance for the future. Market analysts had forecasted earnings per share (EPS) of $0.77 and $1.24 billion in revenue. WDAY reported $1.23 EPS and $1.26 billion in revenue. Investors drove the share price over 9% higher.  

WDAY has lagged both competitor Oracle (ORCL) and State Street’s Technology Sector ETF (XLK) year-to-date, however, the big earnings beat puts WDAY right back into the mix. Workday had $3.31 billion in cash and equivalents on its balance sheet as of July 31, so it’s possible that smart acquisitions can keep the company competitive. After retreating from its 52-week high in February, WDAY had been on a relative downtrend. Perhaps this big earnings pop can help WDAY improve upon its 18% year-to-date gain.  

3/ Marvell Holds Ground Despite Selling  

Also making moves after earnings was infrastructure chip maker Marvell Technology (MRVL), albeit with a less rosy outlook. After beating analysts’ predictions for both EPS and revenue, MRVL shares shed 3% after the company’s outlook range fell below the Wall Street consensus. MRVL reported $0.34 EPS and $1.08 billion in revenue, beating expectations of $0.31 EPS and $1.07 billion in revenue. However, earnings and revenue forecasts for the third quarter came in lower than expected amid a global chip shortage.  

Even with the earnings-based share decline, it’s been a relatively good year for Marvell, as it has outpaced State Street’s Technology Sector ETF (XLK) and iShares’ Semiconductor ETF (SOXX) gaining nearly 32% compared to 23% for XLK and 24% for SOXX. Perhaps the less-than-ideal outlook will place MRVL more in line with the two ETFs.  

The comparison between the trading following MRVL’s and WDAY’s earnings suggest that investors expect more upside in the months ahead. With work from home and the chip shortage likely to continue, analysts expect market conditions not to have an adverse effect on the technology sector.  

4/ The Bottom Line 

Indexes rose today as Fed Chair Powell soothed investors fears. Meanwhile, Workday surprised investors with great results and an optimistic outlook.   

Originally posted on 27th August, 2021

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