Markets in brief
The three major indices closed higher on Monday, with the Dow gaining 0.70%, the NASDAQ advancing 1.29% and the S&P 500 gaining 0.57%. It was stocks from the technology sector that supported the indexes; Microsoft gained 2.4%, Alphabet jumped 2.9% and Facebook took 1.6%. "We're focusing on the big tech stocks this week. It's so beat up, so oversold... so you see money coming in and being redeployed. There's an opportunity," said Jeff Kilburg, chief investment officer and portfolio manager at Sanctuary Wealth. Twitter jumped 5.7 percent after news of a possible purchase of the company by Elon Musk.
For Tom Martin, of Globalt Investments, "with the wave of sales we experienced last week, we returned to levels that led to a rebound", mainly technical, after a session that started in the red.
The fact remains that markets have been sailing in a tumultuous sea for several weeks and investors remain fearful and cautious. Oil prices continued to be volatile, still hovering around $100 a barrel on Monday, still falling as further containment in China would be painful for demand. Indeed, demand from China for oil has already fallen by 1.2 million barrels a day.
"The closures and restrictions imposed by COVID-19 in Shanghai and neighboring cities are not only hitting local demand, but also causing widespread logistics breakdowns and supply chain disruptions within and outside the area," Helen Qiao wrote in the note released on April 19. "In our view, while these control measures will eventually be reversed and economic activities will gradually normalize by mid-year, a heavy toll on growth already seems inevitable."
The three major indices closed Tuesday's session lower, at their lowest level in six weeks. The NASDAQ gave up 3.95%, dragged down by shares of Alphabet (-3.04%), Microsoft (-3.74%) Meta (Facebook -3.23%), Apple (-3.73%) and Amazon (-4.58%). The strength in stocks from Big Tech in recent years "is likely to explode when fundamentals begin to deteriorate significantly as the global economy slows," said Chris Senyek of Wolfe Research in a research note.
The Dow was down 2.38% and the S&P was down 2.81%, largely due to a 10.3% drop in General Electric stock, which unveiled a weaker-than-expected quarterly forecast. "The concern is that if China continues to confine, it could lead to further supply chain disruptions," adding to the decline in Chinese demand, Tom Cahill pointed out.
"This could weigh on corporate earnings" in the second quarter and beyond, as companies currently release their first-quarter business numbers.
Tesla's stock also had a tough session, down 12.2% losing more than 126 billion in value. Investors are concerned that the billionaire might be tempted to sell shares to complete his takeover of Twitter. Since the beginning of the negotiations, the stock has lost more than 20%.
Uncertainty continued in the markets on Wednesday as the three major indices closed without direction. The Dow finished slightly higher by 0.19%, the S&P 500 advanced by 0.21%, while the NASDAQ closed almost flat (-0.01%). "There was no real conviction in this rebound attempt," commented analysts at Briefing.com in a note.
Wall Street is weighed down by "weakening technical indicators, a downward trend and the reaction to mixed corporate results," they continued. "And that's not even mentioning concerns about future growth."
Markets moved from red to green throughout Wednesday's session as investors tried to find some stability in a still volatile environment.
Russia's Gazprom announced that it would stop gas deliveries to Bulgaria as well as Poland. "This action has put further upward pressure on oil and gas prices," says Susannah Streeter, an analyst at Hargreaves Lansdown.
Following this news, black gold prices rose slightly in early trading on Wednesday. "This is the first time the Kremlin has cut off gas supplies to a country since the invasion began," says Stephen Brennock of PVM Energy.
Back to the upside for the indexes on Thursday, which were supported by strong quarterly results from technology companies. "It's been a pretty good earnings season and that's supporting the stock market," said Victoria Fernandez, chief market strategist at Crossmark Global Investments. The Dow advanced 1.85 percent, the NASDAQ gained 3.06 percent and the S&P 500 climbed 2.47 percent.
Several stocks posted solid gains on Thursday; Qualcomm (+9.7%) on strong earnings, while PayPal was up about 11.5% despite weaker results. Merck's stock rose 4.9%, McDonald's gained 2.85% after filing strong results while Apple and Amazon advanced 3% and 4% before filing their results.
Wall Street opened lower on Friday: the S&P 500 was down 1.5%, dragged down by Amazon's stock (-12%), the NASDAQ was down 1.5% while the Dow was down 380 points, or 1.1%.
Alphabet
The company reported weaker-than-expected quarterly results, posting a first-quarter profit of $16.4 billion, down 8 percent from a year ago when the post-pandemic economy reopened. YouTube's advertising revenue came in below analyst expectations. The video platform had seen strong quarterly results during the pandemic when users in lockdown were spending a lot of time on their devices. Since then, Tik-Tok has seen a resurgence in popularity, with users sometimes moving away from YouTube to create content on the platform.
The big technology companies "certainly didn't celebrate, but the health crisis boosted their business tremendously," Verna says. "That kind of growth was not sustainable. If you take that aspect into consideration, the results are not at all disastrous, Google remains a leader in search and very strong in video."
Google Cloud stood out in the quarter, growing 44 percent, exceeding estimates. CFO Ruth Porat said the company's revenue was impacted by the war in Ukraine as the company suspended business operations in Russia. "Beyond that, there was a slight decline in ad spending in Europe," she told Bloomberg TV. In addition, "there's a lot of uncertainty in the macro environment," she said. The stock closed Wednesday's session down 3.6 percent.
Microsoft
The company reported strong quarterly results, posting revenues of $49.4 billion, up 18% year over year. Azure's revenue jumped 46% while its net income came in at 16.7 billion (+8%).
CFO Amy Hood believes that guidance for each of the company's three divisions was in line with analyst estimates. She expects fourth-quarter sales of $52.4 billion to $53.2 billion, despite the current supply chain disruptions.
The stock, which has fallen 19% since the beginning of the year, ended Wednesday's session up 4.8%.
Meta filed better-than-expected quarterly results on Wednesday, even gaining new users. The company reported revenues up 7% accumulating more than $7.47 billion in net income with sales of about $28 billion (+7%).
However, "Facebook's user growth is stagnant," noted Debra Aho Williamson, an analyst at eMarketer. "So it's up to Instagram to serve as a growth engine," she added. "The metaverse is generating a lot of press, but Horizon Worlds, Meta's virtual reality social platform, only has a few hundred thousand users at this point."
However, the Tik-Tok giant continues to overshadow Facebook and Instagram as more and more users use the platform. Facebook continues to struggle to attract young people who are much less present than their parents on the platform. Not to be forgotten are the new constraints imposed by Apple to prevent applications from harvesting user data for advertising purposes without permission, which has hurt the bottom line of many companies.
This constraint, "combined with the rise of TikTok, brand concerns related to problematic content, and changing user behaviors on social networks, heralds turbulence for Meta's ad revenues," commented Jasmine Enberg, an analyst at Insider Intelligence. "Still, it's clear that advertisers continue to use Facebook and Instagram to engage with their huge audiences," she qualified.
Meta reported disappointing numbers last quarter, sending its stock down more than 26%. On Wednesday, the stock soared 19% after the market closed, and ended Thursday's session up 17.5%.
Amazon
It was Amazon's turn to file its results on Thursday, posting a 7% increase in revenue to US$116.4 billion, but announced lower sales expectations for the next quarter.
"While sales fell short of expectations by just $6 million, the big headline was the company's first quarterly loss since 2015, with a loss per share of $7.56, nearly $16.00 below Street earnings per share expectations," said William Blair analysts. "Under the hood, the company reported an $8 billion pre-tax loss related to its investment in Rivian Automotive. Recall that the company reported a $12 billion profit in the previous quarter related to the investment. We estimate the company's earnings per share, excluding the investment-related loss, would be about $3.40, still 60% below consensus, as the company continues to face headwinds related to shipping, labor, excess capacity, and difficult year-over-year comparisons."
Its stock began Friday's session down 12%.
Apple
The company also released its last quarter results on Thursday, revealing record iPhone sales with a 9% increase in revenue. The company sold more than $50 billion worth of iPhones while its net profit came in at $25 billion, up 5.8 percent. However, Apple announced that the containment in China and the war in Russia will affect its results for the next quarter.
"This quarter's record results are a testament to Apple's relentless focus on innovation and our ability to create the world's best products and services," Apple CEO Tim Cook said in a statement. "We are excited to see the strong customer response to our new products, as well as the progress we are making toward becoming carbon neutral in our supply chain and products by 2030. We are committed, as always, to being a positive force in the world - both in what we create and what we leave behind," Cook said.
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