The Daily Breakdown: Software Slaughter

Software stocks are getting slaughtered…and so is silver and bitcoin. The Daily Breakdown jumps into the market chaos to see what’s moving.

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What’s Happening?

Software stocks have been hit hard in recent weeks, with the Nasdaq Software Index falling for six straight sessions and dropping more than 12% over the past two days. Names like Microsoft, Salesforce, Adobe, ServiceNow, AppLovin, and Shopify have led the decline. The selling has also spread beyond software, pressuring firms like Booking Holdings, Expedia, S&P Global, Moody’s, and Nasdaq. 

Software stocks are being decimated as worries permeate over whether AI will cannibalize their businesses. However, while the long-term implications are still somewhat unknown, many of these firms continue to generate solid earnings and revenue growth, and analyst expectations for these metrics continue to trend higher. Software stocks are likely nearing capitulation, however, the bigger long-term risk may be on valuation. Once this selloff is over and the stocks recover from their oversold condition, will there be a new ceiling on just how much investors are willing to pay for them? 

The IGV ETF is the leading software ETF by AUM. 

Crypto Tumble

Crypto is also sliding. Bulls’ confidence is being tested as Bitcoin teeters on the key $70K to $75K zone, with Ethereum, XRP, and others following. That’s weighing on ETFs like IBIT and ETHA, but also on stocks like Strategy (which reports earnings today).

Today’s Events

On the calendar, today’s 10 a.m. ET JOLTS report will update job openings, quits, and layoffs. Amazon, Reddit, Roblox and others will report earnings tonight.

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The Setup — Staples

Rotation, rotation, rotation. While it feels like the floor is falling out in tech and crypto, other sectors in the market are doing just fine. For instance, look at consumer staples via the XLP ETF. The sector has hit new record highs each day this week and is being led by stocks like: Walmart, Costco, Procter & Gamble, Coca-Cola, and Philip Morris. 

The XLP had been rangebound between $75 and $84 for almost two years, but this week’s breakout has vaulted the ETF to new heights. From here, bulls want to see former resistance near $84 turn into ongoing support (remember, role reversal). Currently, the XLP is looking for its fifth straight weekly gain. 

Options

For some investors, options could be one alternative to speculate on XLP. Remember, the risk for options buyers is tied to the premium paid for the option — and losing the premium is the full risk. 

Bulls can utilize calls or call spreads to speculate on further upside, while bears can use puts or put spreads to speculate on the gains fizzling out and XLP rolling over. For those looking to learn more about options, consider visiting the eToro Academy.

What Wall Street’s Watching

GOOG

Shares of Alphabet are in focus after the firm reported better-than-expected earnings and revenue expectations. Google Cloud exceeded analysts’ estimates too, but the real shocker was management’s CapEx guide. The company expects $175 billion to $185 billion in capital expenditures this year, well above the $119.5 billion consensus. Shares are down modestly this morning after the report. Dig into the fundamentals for GOOG. 

QCOM

Qualcomm stock is moving lower this morning, down almost 10% after the firm reported earnings. While Qualcomm beat on earnings and revenue expectations, the company’s guidance fell short amid a global memory shortage. It expects adjusted EPS of $2.45 to $2.65 on revenue of $10.2 billion to $11.0 billion, versus analysts’ forecasts of $2.89 in earnings per share on $11.11 billion in sales. Check out the price targets for QCOM. 

Silver

Volatility continues, with silver prices down more than 10% on Thursday morning. After last week’s historical fall, silver prices rebounded back above $90 an ounce, but are now back under pressure. That volatility is also stemming to the SLV ETF, and to a lesser degree, is also being felt in gold — which is down ~2% this morning — and the GLD ETF. Check out the chart for SLV.

Disclaimer:

Please note that due to market volatility, some of the prices may have already been reached and scenarios played out.