Alphabet, Microsoft, Meta, Amazon and Apple earnings this week will be crucial in either settling or aggravating investor jitters over Federal Reserve policy tightening and the wretched results from Netflix last week.
It was already a big week in terms of corporate earnings, with 179 of the S&P 500 reporting, the pressure has ramped up as it arrives with a background of what traders described as a “Wall of Worry” market, with global stock indices tumbling towards the end of last week and continuing today where they left off.
Much attention and confidence will be taken from the performance of the trillion-dollar tech giants and other FAANG stocks, with Tuesday seeing earnings from Microsoft Corporation (NASDAQ:MSFT) and Google owner Alphabet Inc (NASDAQ:GOOG) after the closing bell, with Facebook parent Meta Platforms Inc (NASDAQ:FB) reporting late on Wednesday and followed the evening after by Apple Inc (NASDAQ:AAPL) and Amazon.com Inc (NASDAQ:AMZN).
“In a nutshell, the Street needs to see the fundamental drivers in play on the cloud, enterprise, and consumer front to show the ‘feared slowdown’ is more bark than bite at this point in the cycle,” said analyst Daniel Ives at US broker Wedbush.
While the US first-quarter earnings season got off to a solid start, with close to 80% of companies beating profit forecasts, according to UBS, Netflix’s shock drop in subscribers, amid reports of consumers slashing non-essential spending, has sent ripples of worries through the market’s tech names in particular, with the Nasdaq Composite falling over 6% since Thursday and taking it to a near 20% decline in the year to date.
The companies formerly known as FAANG (and Microsoft) have lost more than US$2.1trn in combined market value between them since December, representing nearly half of the S&P 500’s US$4.4trn loss over the same period.
This has left five of the six in ‘bear market’ territory with falls of more than 20%, with Apple the sole exception.
That “raises the stakes” for Apple’s second-quarter results, said analyst Russ Mould at AJ Bell, “any degree of disappointment here – or weak guidance for the third quarter – could put a further squeeze on the share prices of Big Tech and possibly the wider US stock market”.
With their total valuation only back to where it was in June 2021, if this really is the beginnings of a Big Tech bear market “then investors have seen nothing yet, at least if the 2000-03 meltdown is any guide”, said Mould.
Ives and his team are expecting strong numbers from Microsoft and Apple as part of a bifurcation in the tech story, where software, semiconductors, cyber security and product-driven names such as Apple are on the winners’ side of the ongoing digital transformation, while the ‘WFH poster children’ such as Netflix, Meta, Zoom Video Communications Inc (NASDAQ:ZM) will see their valuations compress as results soften from their pandemic highs.
The earnings from Microsoft and Apple “could dictate the path of tech stocks over the coming months”, Ives said.
Wedbush predicts large transformational cloud deals at the Redmond-based colossus are up north of 50%, with deal sizes continue to increase markedly as businesses accelerate the digital transformation.
As for Apple, the estimate is that Apple has gained roughly 3% of market share in China over the last 12 months on the heels of its 5G iPhone 12/iPhone 13 product cycle.
“The focus naturally of the Street has been on the chip shortage for Apple (and every other tech/automotive player) and Covid China factory shutdowns, however the underlying iPhone 13 demand story for Cupertino both domestically and in China is trending ahead of Street expectations.”
With the renewed focus on earnings, Mould suggests, “We may be reaching the stage of the market cycle where fundamentals and valuation really do matter much more than financial engineering.”
Wider patterns
Other tech-related companies releasing results will include Activision Blizzard on Monday; LG, Qualcomm and Spotify on Wednesday; with Samsung, Intel and Twitter on Thursday.
At Deutsche Bank analysts highlighted that consumption patterns will be in focus with results from Coca-Cola on Monday, Mondelez (NASDAQ:MDLZ) and Chipotle on Tuesday, Kraft Heinz on Wednesday and McDonald's on Thursday, while a range of banks across the globe will give a pulse check on consumer credit, including HSBC on Tuesday, Barclays on Thursday and NatWest on Friday, along with European peers UBS, Credit Suisse and Santander, and US payments giants Visa, PayPal (NASDAQ:PYPL) and Mastercard from Tuesday to Thursday respectively.
In healthcare, another sector that benefitted from the pandemic, reporters will include GlaxoSmithKline and AstraZeneca in London on Wednesday and Friday, along with Novartis on Tuesday, Eli Lilly, Merck and Sanofi on Thursday.
The Deutsche team said markets will also get to see “how the commodity rally and the focus on energy transition affected major commodity companies worldwide”, with results from Iberdrola and Vale on Wednesday; Total and Repsol on Thursday; Exxon, Orsted, Chevron and Eni on Friday.
US earnings season 25-29 April 2022
Monday: Coca-Cola, Activision Blizzard and Whirlpool (NYSE:WHR)
Tuesday: Microsoft, Alphabet, Visa, PepsiCo (NASDAQ:PEP), UPS, Texas Instruments, General Electric (NYSE:GE), Mondelez (NASDAQ:MDLZ), 3M, General Motors and Wolfspeed
Wednesday: Meta Platforms, Qualcomm, Boeing, Kraft Heinz, Xilinx, United Rentals (NYSE:URI) and Spotify
Thursday: Apple, Amazon, Mastercard, Comcast (NASDAQ:CMCSA), Intel, McDonald’s, Caterpillar, Altria, Ford, KLA Corporation, Hershey, Twitter, Southwest Airlines (NYSE:LUV), Royal Caribbean Cruises and Skyworks
Friday: ExxonMobil, Chevron, Honeywell (NYSE:HON) and Colgate-Palmolive