Chart Advisor: Conflicting Results

Tuesday, 26th October, 2021

1/ Indexes edge up as investors show ambivalence  

2/ Eli Lilly’s shares rise on upbeat outlook 

3/ Investors pull back from Facebook

4/ The bottom line

1/ Indexes Edge Up as Investors Show Ambivalence  

Major averages again reached highs as earnings season trundles on. State Street’s S&P 500 Index ETF (SPY) rose 0.1%, pulling back slightly from an intraday high. State Street’s Dow Jones Industrial Average ETF (DIA) likewise touched a new high intraday before pulling back to remain flat. Leading the way higher was Invesco’s Nasdaq 100 ETF (QQQ), which added 0.2%. iShares Russell 2000 ETF (IWM) shed 0.7%.  

Third-quarter earnings continue to be relatively positive, with a slate of mega-cap tech companies set to announce their quarterly results this week.  

The chart below compares the recent performance of the S&P 500 Index (SPX) with Cboe’s Volatility Index (VIX). The SPX and VIX generally have an inverse relationship, as the VIX is a measure derived from SPX option prices. The VIX is low when SPX option prices are lower because trades expect smaller SPX price changes in the future. 

SPX has recently touched intraday highs several days in a row and the VIX has remained relatively low. Currently below its long-term average, the VIX rose today, even as SPX moved higher. This could mean that while SPX continues to rise, option traders are placing more bets than previously that the index could move to the downside in the near term.  

2/ Eli Lilly’s Shares Rise on Upbeat Outlook 

Investors bid up the share prices of Eli Lilly (LLY), despite the company missing earnings per share (EPS) expectations for the fiscal third-quarter. Analysts expected $1.96 in EPS and $6.64 billion in revenue. LLY reported $1.94 in EPS and $6.77 billion in revenue. The stock rose by nearly 1.3% after LLY boosted its full-year sales and profit outlook. 

LLY stock has been on a recent uptrend, as illustrated on the chart below, which compares the recent performance of LLY with State Street’s Healthcare Sector ETF (XLV). LLY’s recent trend upward has the stock more in sync with its sector, which it had previously lagged. However, on a larger scale, LLY has outperformed XLV year-to-date, as LLY has added 49% compared to XLV’s 17% gain in that time frame. 

LLY cautioned in their quarterly report that it expects minimal revenues from its COVID-19 therapies in 2022. It’s possible that several of XLV’s top holdings could see similar effects on future revenues as the COVID-19 pandemic wanes. 

3/ Investors Pull Back from Facebook

Facebook (FB) shares slid 4% after the company missed revenue expectations in the company’s fiscal third-quarter earnings report. Market analysts had forecast $3.19 in EPS and $29.5 billion in revenue—FB reported $3.22 in EPS and $29.0 billion in revenue. This is a tumultuous time for the social media giant, as the company is focusing increasing amounts of resources on the “metaverse,” while receiving negative attention after several whistleblowers have raised concerns about the company.  

FB has largely lagged the technology sector of late. The chart below compares the recent performance of FB stock with Invesco’s tech-heavy Nasdaq 100 Index ETF (QQQ). While FB is currently on a downward trend, QQQ broke from this trend to swing upward at the beginning of October, and the gulf between the two continues to widen. 

QQQ has recently been dragged higher by Tesla (TSLA). However, if the rest of mega-cap tech earnings offer results closer to FB’s, the gap between QQQ and FB could narrow.  

4/ The Bottom Line 

Investors showed plenty of ambivalence as index prices fluctuated strongly throughout the session. Two examples of this mixed response can be found in the post earnings share activity of Eli Lilly and Facebook. Both companies fell short of analysts’ expectations, but investors bought more LLY shares and sold FB shares. 

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Originally posted on 26th October, 2021