Oct 26, 2022
VOT Research Desk
Breaking News
Market Insights, Considerations & Analytics
As a result of the increasingly uncertain economic picture, shares of technology titans Microsoft and Alphabet continued to decline on Wednesday morning. This suggests that upcoming earnings from giants like Meta and Twitter might even shock investors.
TOPIC FACTS
Microsoft’s shares fell 8% to approximately $230 on Wednesday morning despite the company beating sales and profit forecasts last quarter. The company said it will try to contain costs “monetarily” throughout the year as revenues in the current quarter may fall short of forecasts by about $3 billion.
In its after-hours report, Alphabet, the parent company of Google, happened to miss third-quarter sales and profit aspirations and stated that it would focus on cost-cutting this quarter. The company’s YouTube advertising unit in particular reported a much weaker-than-expected $7.1 billion, compared to average expectations of about $7.5 billion.
It was a bad night for tech earnings, according to analyst Adam Crisafulli of Vital Knowledge, who also notes that compared to Google’s search engine division, YouTube advertising is less reliable to times of recession (as is social media in general). This is a worrying development in front of this week’s earnings from Meta as well as Twitter.
As a result of the collapsing share prices of the second- and third-most significant firms in the country (is only behind Apple), around $253 billion in market value was lost ($148 billion from Microsoft as well as $105 billion from Alphabet), driving both stocks to levels that are close to two years down.
One encouraging factor is that Amazon’s advertising division has historically resisted Google search, which may be good news for Thursday’s earnings. However, the company’s shares fell about 4% on Wednesday, joining the tech downturn.
WHAT TO LOOK OUT FOR
With 43% of S&P companies expected to report profits this week, it will be the busiest week of the earnings season. However, 25% of consumption and investment businesses, including Walmart, won’t report until mid-November. According to Bank of America, as the season goes on, attitude may become “incrementally more negative.
IMPORTANT HORIZONS
After aggressive interest rate increases this summer sent several major indexes into bear market territory, the stock market has been in turmoil this month. The S&P 500 has increased by approximately 8% over the last two weeks as there are indications that the Federal Reserve may soon stop the hikes, which try to control inflation by moderating consumer demand. But a major cause of worry has been the impending corporate earnings. In a recent report, analysts at Morgan Stanley warned against making the assumption that the gains will last for a long time since a number of new risks—such as the eurozone’s economic downturn, the strength of the dollar, and the uncertainty surrounding China’s reopening—could likely hurt business profitability over the next six months.
Stocks and other risk assets are expected to experience a big bounce the instant the Fed decides to put out the fire [by delaying interest rate hikes], predicts Morgan Stanley strategist Michael Wilson. We must continue to cope with the impending earnings downturn, which is expected to gain momentum this earnings release and the next, so trying to play that for more than a brief bounce is a bad idea.
IMPRESSIVE FACT
The S&P 500 index, which is already down 20% this year, may yet decline another 10% to 20%, according to Morgan Stanley’s projection of a bear market trough somewhere between 3,000 to 3,400 points.
