This Week’s Focus Will Be About Guidance

Yesterday was, to say the least, a consequential day in the markets.  While the DeepSeek freakout caught many by surprise, this was already shaping up to be an important one for key stocks and the market as a whole.  An FOMC meeting and an array of megacap tech earnings will do that.  Hearing about the recent past and present will be quite useful, but learning about the future will be much more relevant for investors.

The idea that guidance, not current earnings, is more relevant to investors should not be a new concept.  Ahead of last quarter’s earnings season we wrote a piece entitled “Guidance, Not Current EPS, Is the Key This Season”, and we were reminded of that concept once again this morning.  Boeing (BA) reported a loss of -$5.90 per share, far worse than the expected -$3.07 loss, but the stock is nonetheless 4% higher after offering an optimistic forecast for 737 jet output.  Meanwhile, General Motors (GM) posted adjusted EPS of $1.92, above the $1.83 estimate, but the stock is trading -10% lower because their decent guidance was greeted with skepticism by analysts when it failed to account for potential tariffs.

The market reaction to GM’s guidance shows us that investors will be concerned not only with tangible guidance, but intangibles as well.  Thus, in light of yesterday’s DeepSeek-related revaluations, the stakes are even higher for the likes of Meta Platforms (META), Microsoft (MSFT), and Tesla (TSLA) when they report after tomorrow’s close and Apple (AAPL) which reports Thursday afternoon.  It is nearly impossible to imagine that at least one analyst won’t ask whether DeepSeek affects the value and efficacy of MSFT’s substantial investment in OpenAI or whether META’s huge capital spending plans will be affected by the apparent success of open-source AI – something META embraces.  We can expect similar questions for both TSLA and AAPL as well.  Those answers will prove critical to the post-earnings reactions for those stocks and many others.

This mentality also largely applies to tomorrow’s FOMC meeting.  Virtually no one expects a rate move from the Fed tomorrow, investors will be eagerly seeking clues about the potential for rate cuts in 2025.  Expectations have largely returned to pricing in roughly two cuts for the remainder of the year, with a full cut priced in as early as June.  Yet we have seen those expectations fluctuate in the weeks since the last Fed meeting.  The most recent monthly employment report spooked markets by being too hot before the most recent CPI report encouraged traders by showing cooler price pressures. 

Taken together, that sounds like a Goldilocks scenario.  Will “Goldilocks in a Suit” be able to perpetuate that belief?  We should expect to hear numerous questioners to ask Chair Powell about whether potential tariffs will affect Fed policy, and in light of the first round of Executive Orders, whether a suddenly restrictive set of fiscal policies will change their views about prices and economic activity.

The outcomes will be difficult to predict, raising of course, the potential for renewed volatility.  Fortunately for hedgers, the market has seemingly once again priced out much of that potential.  The Cboe Volatility Index (VIX) has reverted to its 10-day moving average after a brief run higher.  Are we once again too sanguine?

VIX 6-Months Daily Candles with 10-day Moving Average

Source: Interactive Brokers