Tech earnings in view
- MSFT fell 29% in 2022, has bounced roughly 8% in past 7 days
- Earnings scheduled for next Tuesday (after the close)
- Stock has tended to rally in five-day pre-earnings window
Last year was not a good year for tech, and it’s too early to know whether the tide will turn in any meaningful way in 2023. But the sector that led the stock market during the 2009–2021 bull run will likely remain front of mind for many traders and investors—especially over the next few weeks, as several of the industry’s biggest names prepare to report earnings.
Right now, Microsoft is currently scheduled to get a jump on its big-tech brethren, with numbers due on January 24 (next Tuesday). The following chart shows the stock’s past 14 earnings-day price moves, along with the market’s current estimate (based on options implied volatility) of how much it will move after next week’s announcement:
Source: Power E*TRADE. (For illustrative purposes. Not a recommendation.)
The columns show how much the stock gained (green columns) or lost (red columns) on earnings day, with the purple columns representing the options market’s implied move: The final one shows that yesterday the market was forecasting a +/- 3.95% earnings-day move, very close to the average 3.91% implied move over the past five years (purple dashed line). The yellow dashed line shows MSFT’s actual average earnings-day move was +/-2.83%.
One thing to remember about composite performance data like this—especially composite implied forecast data—is that individual results can vary dramatically. Over the past 20 quarters, for example, MSFT has rallied on 13 earnings days and fallen on seven, ranging from a 5.8% gain to a 7.2% loss.
The following chart shows the price action around MSFT’s past two earnings announcements was very different. Last July, the stock dropped on earnings day but rallied over the several days, while the stock inverted the pattern in October:
Source: Power E*TRADE. (For illustrative purposes. Not a recommendation.)
And while many traders are focused on earnings day and the first few days following it, MSFT has displayed a tendency to rally more frequently over the five trading days before an earnings announcement (which includes the day the numbers are released, since MSFT announces after the close) than the five after it: The stock gained ground 77.1% of the time in the five-day pre-earnings window, and only 58.3% of the time in the five-day post-earnings window.1
A final highlight: The stock’s weakest day in the five-day pre-earnings window was, historically, the last one (i.e., the trading session on the day of the announcement): MSFT closed lower 60.4% of the time.
Market Mover Update: Bill.com (BILL) closed higher for the fifth time in the past six days after rallying more than 4% on Tuesday (see “An option for spreading risk”).
Today’s numbers include (all times ET): Producer Price Index, PPI (8:30 a.m.), Retail Sales (8:30 a.m.), Industrial Production (9:15 a.m.), Capacity Utilization (9:15 a.m.), Business Inventories (10 a.m.), NAHB Housing Market Index (10 a.m.).
Today’s earnings include: Prologis (PLD), PNC (PNC), Alcoa (AA), Wintrust (WTFC).
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1 All figures reflect Microsoft (MSFT) daily prices, October 2010–October 2022 (the past 48 earnings announcements). Supporting document available upon request.