Global investors will be looking to big tech earnings to put the brakes on sliding stock markets. Last week we had Netflix (NFLX:NASDAQ) and that was a disaster, with growth slowing and subscribers numbers reversing.
On Friday (22 April 2022), as stocks fell across the board, the Dow Jones Industrial Average posted its worst one-day loss since the early days of the pandemic, on signs that rising interest rates and persistently high inflation will hurt the economy and weigh on corporate profitability.
The closely watched S&P 500 ended the past trading week down 2.6%, its fourth losing week on the spin. Investors are hoping that dynamic will change in the week ahead as mega tech, marquee companies such as Microsoft (MSFT:NASDAQ), Alphabet (GOOG:NASDAQ), Amazon (AMZN:NASDAQ) and Apple (AAPL:NASDAQ), report earnings.
Overall, about a third of the S&P 500 and nearly half of the Dow Jones Industrial Average are expected to provide their quarterly updates this week, according to FactSet.
Between the lingering Covid pandemic, military conflict in Ukraine, an ongoing shortage of semiconductors, and surging inflation, the broader macroeconomic backdrop has turned more difficult for risk assets, including equities of all types.
INFLATION TRADE REMAINS KEY
Surging inflation, and interest rate hikes from the Federal Reserve, may be the most significant one for the fast-growing technology sector. Historically, traders have rotated out of so-called ‘growth’ stocks and into ‘value’ companies when inflation is elevated, and markets have followed this playbook in 2022 so far.
What might we learn from this week’s big tech earnings?
| When big tech reports this week | |
| Tuesday, 26 April | Alphabet |
| Microsoft* | |
| Wednesday, 27 April | Meta Platforms* |
| Thursday, 28 April | Amazon* |
| Apple* | |
| Source: Investing.com *After market close | |
With the cost of everything rising, investors will be paying close attention to signs of any slowdown in ad spending by businesses, at a time when the economy is entering an uncertain phase, hurt by four-decade high inflation.
Alphabet reports on Tuesday (26 April) and when it last reported in February the company was firing on all cylinders even in the face of economic upheaval. Beyond its core online search business, investors will be looking for evidence that its cloud computing arm Google Cloud continues to thrive, and that YouTube profits remain robust. Consensus forecasts point to earnings per share of $25.70 on $68.1 billion revenue.
It may be hard for Facebook-owner Meta Platforms (META:NASDAQ) to impress given falling daily users numbers and the impact on its own advertising revenues from changes to Apple’s iOS privacy settings. Meta reports after the market close on Wednesday (27 April) and analysts expect the owner of the social media giant to show $28.3 billion in sales and $2.56 a share of earnings.
CHINESE LOCKDOWN
The maker of the iconic iPhone and Amazon both report after the market close on Thursday (28 April). Analysts project Apple to report EPS of $1.43 on sales of $94.2 billion and investors will be looking for any impact on earnings from China’s recent lockdowns among other things.
The inflationary backcloth doesn’t look great for Amazon’s e-commerce business, but there remains powerful momentum from its own growing online advertising operation and Amazon Web Services, the company’s cloud computing unit. The consensus is that the world’s largest e-commerce company will deliver $116.5 billion in sales, producing EPS of $8.37.
Microsoft stock has underperformed the S&P 500 since the end of the 31 March quarter, losing 11% versus the index’s 6% decline, as recession jitters and alleged demand pull-forward hit sentiment. But Microsoft’s suite of products are so enmeshed in many enterprises and homes that analysts remain upbeat on its progress.
‘We believe Microsoft’s premium quality and undemanding valuation will prevail into and out of next week’s event,’ said Deutsche Bank analyst Brad Zelnick last week. Zelnick’s projections largely matches consensus, anticipating $48.8 billion quarterly revenues and $2.18 EPS.
