Can Apple, Tesla and Microsoft launch stocks as a lifeline for earnings?
With the Nasdaq suffering its worst January performance since 2008 and suffering the biggest intra-day swings since the bubble of the early 2000s, investors are looking for a valuation lifeline next week amid a series of big profits technologies that could make or break forecasts for the next year.
Apple (AAPL) – Get the Apple Inc., Microsoft (MSFT) – Get the Microsoft Corporation report, You’re here (TSLA) – Get the Tesla Inc report, Intel (INTC) – Get Intel Corporation report and IBM (IBM) – Get International Business Machines Corporation report will release December quarter updates, beginning at Monday’s market close, with top stock names such as General Electric (GE) – Get the General Electric company report, Boeing (BA) – Get Boeing company report, ford (F) – Get Ford Motor Company report, Johnson & Johnson (JNJ) – Get the Johnson & Johnson report and caterpillar (CAT) – Get the Caterpillar Inc. report. highlighting the busiest week of what has been a disappointing earnings season so far.
netflix (NFLX) – Get the report from Netflix, Inc. lowered the bar significantly on Thursday night when it topped Street’s forecast, but provided a significantly weaker-than-expected forecast for near-term subscriber growth that it failed to properly explain to bewildered analysts during its conference call.
The resulting confusion wiped more than $50 billion from the streaming group’s market capitalization and sent it back to levels last seen before the Covid pandemic.
Platoon (PTON) – Get the Class A report from Peloton Interactive, Inc. managed to put a tourniquet on filings that it was planning a major production shutdown, but its December quarter pre-announcement – and reference to “significant corrective actions” – only recovered a small part of the collapse of 2.5 billion of the stock.
Netflix and Peloton did manage to unite investors in at least one way, though: Their bleak demand forecasts raised questions about whether the long-anticipated pullback in tech stocks has finally suddenly come into fashion.
Rising interest rates and slowing earnings growth are a bad combination for equities – tech or otherwise – and simmering geopolitical tensions, coupled with multi-year highs in commodity prices and a lingering global pandemic, don’t really give confidence.
The Fed is also scrambling to prove its inflation-fighting credentials — and regain its broader credibility — when it meets next week in Washington. Traders expect at least three and as many as five rate hikes by the end of the year, and if the Fed sticks to its guns, the repricing of risk over the next few months will be complete as consumer momentum evaporates.
In fact, assets that are supposed to have no connection to traditional markets – I’m talking about crypto here – are already doing arithmetic on the back of the envelope: Bitcoin is down more than 40% from its mid-November peak and ready to break through the $38,000 mark in the coming days.
GameStop (EMG) – Get GameStop Corp Class A report., the Reddit-powered darling that defined last year’s go-go enthusiasm (even as it continued to post back-to-back quarterly losses) fell below $100 on Friday for the first time since March. and potentially signaling the first retail investor capitulation.
So what kind of respite, if any, can earnings provide next week?
Apple has already told us that sales in the December quarter will be reduced by Covid-related disruptions to its supply chain, while the good news from Tesla’s record quarter can only really be improved if higher profit margins are announcements – a daunting challenge when input costs are rising at record rates in markets around the world.
Collective S&P 500 earnings are expected to rise 23.1% in the fourth quarter, to $434.4 billion, before slowing to just 7.5% for the first three months of the year.
All of this could explain the market’s miserable week, the worst since October 2020, and analysts’ reassessment of stock performance from top to bottom on Wall Street.
Yet Bank of America’s weekly “Flow Show” report suggests that the world’s biggest fund managers are reckless: more than $52 billion has been invested in equity funds so far this year – a figure which matches the count at the start of January last year – and equities still comprise more than 65% of private client holdings.
Michael Halloran of Janney Montgomery Scott notes that while S&P 500 returns normally fall 6% in the first three months of a rate hike cycle, the weakness is usually short-lived: “Since average returns are by +5% in the six months following the first rise,” he said. “Furthermore, valuation has remained relatively flat, with the S&P 500 P/E generally flat in the 12 months around the first rise. “
If the story holds up, however, next week’s hit list can’t come up with too many surprises, so let’s hope we get to next Friday without another Netflix.