- The Dow Jones Industrial Average (DJIA) struggled on Thursday.
- Microsoft and Tesla smashed earnings expectations last night, proving this tech rally has foundations.
- New tensions between the U.S. and China could bring volatility today.
So much for the cries of ‘dot-com bubble.’ Microsoft (NASDAQ: MSFT) beat earnings expectations last night. While this arguably proved to investors that the tech-lead charge has real foundations, the Dow Jones Industrial Average (DJIA) still turned lower on Thursday.
As I wrote yesterday, Microsoft’s earnings report was a make-or-break moment for the stock market. Any disappointment would have burst the illusion of the big tech recovery.
Instead, the company delivered record quarterly revenue, confirming that this tech rally is for real. CEO Satya Nadella summed it up:
The last five months have made it clear that tech intensity is the key to business resilience. Organizations that build their own digital capability will recover faster and emerge from this crisis stronger.
The news will give investors broader confidence in the market’s recovery. The tech rally isn’t just hot air; there are real fundamentals behind it.
Dow bleeds lower despite solid tech earnings
Microsoft’s earnings were good news, but the U.S. stock market struggled to maintain momentum on Thursday.
As of 9:40 am ET, the Dow had lost 58.7 points or 0.22% to fall to 26,947.14.
MSFT was the third-worst stock in the Dow 30, with shares dropping about 1%.
The S&P 500 dipped 0.06% to 3,274.02, while the Nasdaq’s 0.05% slide caused the tech-heavy index to tick down to 10,700.47.
A record quarter for Microsoft
Dow Jones tech giant Microsoft beat expectations across the board in last night’s report.
- Revenue: $38 billion vs. $35.5 billion expected
- Earnings per share: $1.46 vs. $1.36 expected.
- Cloud: $13.4 billion vs. $13.1 billion
Microsoft shares dipped in after-hours trading with traders taking profits after a strong run-up to earnings. A classic ‘buy the rumor, sell the news’ event.
What’s more important is the big picture. With Microsoft and IBM beating expectations in cloud services this quarter, it’s clear the recent crisis has accelerated a digital future. The ‘sky-high’ tech valuations and strong rally since April reflect this foundational shift.
Tesla (NASDAQ: TSLA) also impressed last night, reporting a fourth-straight quarter of profits. That makes Tesla eligible for inclusion in the S&P 500. Elon Musk’s company beat expectations on the top and bottom line. Wedbush managing director Dan Ives shared his opinion on CNBC after the results:
This is a jaw dropper… This puts massive fuel in the tank of the bulls.
What to watch on the Dow Jones today
Fast-forward to today, and all eyes are on Thursday’s weekly jobless claims.
The 1.416 million new filings exceeded expectations (1.3 million) this week as the economic crisis continued to ripple through the United States.
Thursday’s reading was the 18th straight week jobless claims came in above 1 million.
Lawmakers are edging closer to a new stimulus package with Senate Republicans reaching a tentative agreement late last night. We’re expecting the $600 weekly unemployment lifeline to be slashed as low as $100 – a move that could dampen consumer spending.
Tensions between the U.S. and China could squash stock market optimism
Elsewhere, tensions are rising between the U.S. and China. The U.S. gave China 72 hours to close its Houston consulate after allegations of spying.
Robert Daly, director of the Wilson Center’s Kissinger Institute on China and the United States called it a “dramatic escalation in tensions” and said China will strike back.
It’s almost certain that China will retaliate. The most likely form of retaliation would be closing the American consulate in Wuhan.
Indeed, Chinese foreign ministry spokesperson Wang Wenbin threatened retaliation overnight.