Microsoft (MSFT) turned out to be the negative catalyst for the market that many bears thought it would be. There are several market strategists and pundits that have been looking for slowing growth and a decline in multiples to eventually trigger a retest of the lows.
Strategists such as Mike Wilson of Morgan Stanley (MS) have been quite vocal in calling for new lows in the first half of the year that would ultimately lead to a market bottom. The main argument for this belief is that the market is too optimistic about the economy, and many stocks still need to reflect the economic slowdown that is building.
The report from Microsoft confirms this bearish scenario to some degree. While earnings and revenues for the fourth quarter were mostly in line, the CEO called 2023 a 'dead year' and discussed the many challenges ahead.
Microsoft is trading down about 4% but still above some key resistance levels. Whether it breaks down further or not depends on how the earnings season progresses from here. The other major technology stocks don't report until next week, but the cloud sector is being hit hard this morning.
I am already positioned with high levels of cash, but I am further reducing a few extended names like Genius Sports (GENI) while I look for a few smaller buys. I continue to bid Beyond Air (XAIR) which is one of my favorite plays in front of potential contracts, and I am seeing some relative strength in biotechnology names, although volatility is elevated.
While many market players are depressed by this sort of action, it gets me excited about the developing opportunities. If you have a high level of cash on hand, this is exactly what you want to see. However, it is important to stay patient and move incrementally. I think many small-caps have already seen their lows for this cycle, but that doesn't mean they are going to produce sustained upside right away.