Making sense of the markets this week: February 5, 2023

Mixed earnings results for Big Tech

The fourth-quarter tech earnings season has been difficult to paint with a single stroke… as with many things so far in 2023. Is the dominant story that Meta (META/NASDAQ) shares popped 27% on Thursday after CEO Mark Zuckerberg announced a “year of efficiency”? Or is it the fact that Apple (APPL/NASDAQ) had its first earnings miss in seven years?

Here are the Big Tech earning highlights:

  • Alphabet (GOOGL/NASDAQ): Earnings per share of $1.05 (versus $1.18 predicted) and revenues of $76.05 billion (versus $76.53 billion predicted).
  • Amazon (AMZN/NASDAQ): Earnings per share of $0.03 (versus $0.17 predicted) and revenues of $149.2 billion (versus $145.4 billion predicted). 
  • Apple (APPL/NASDAQ): Earnings per share of $1.88 (versus $1.94 predicted) and revenues of $117.15 billion (versus $121.10 billion predicted).
  • Meta (META/NASDAQ): Earnings per share of $1.76 (predictions of $2.22 were rendered irrelevant due to a restructuring of the balance sheet) and revenues of $32.17 billion (versus $31.53 billion predicted).

In reading through the transcripts of these earnings calls, I noticed what they all have in common. It’s the mention of the headwinds created by the strong American dollar, as well as declining spends on advertising across the community and controlling costs.

And Zuckerbeg isn’t the only one highlighting efficiencies for 2023. Amazon announced 18,000 layoffs. Its CEO Andy Jassy stated: “We’re working really hard to streamline our costs and trying to do so at the same time [so] that we don’t give up on the long-term strategic investments that we believe can meaningfully change broad customer experiences and change Amazon over the long term.”

Apple’s and Meta’s quarters might be outliers and not really part of a broader trend. It’s tough to argue with CEO Tim Cook stating Apple’s lacklustre results were chiefly due to the strong dollar, Chinese production issues and declining consumer spending due to the macroeconomic environment. Meanwhile, while the market loved Meta’s new focus on cutting costs, and the $40 billion stock buyback announcement, it is notable that the company’s main source of revenue (advertising) was down 4.3% year over year.

It’s clear that even after massive share price hits in 2022, the market is still finding it difficult to value these tech behemoths.

“The disinflationary process has started” but also “ongoing increases” expected

Good luck to the folks who get paid to parse the utterings of U.S. Federal Reserve chairman Jerome Powell. Key U.S. stock indices whipsawed yesterday as the U.S. Fed announced a quarter-point increase of their benchmark interest rate to a target-range of 4.5% to 4.75%.

While the 0.25% interest rate raise wasn’t a surprise, the hawkish tone of Mr. Powell’s statement did raise a few eyebrows. Despite admitting that “Inflation data received over the past three months show a welcome reduction in the monthly pace of increases,” the Fed chair concluded it was “very premature to declare victory,” and that “ongoing increases” should be expected.

Seeing how quickly inflation has been falling for both sides of the border, the bond markets are still betting Mr. Powell is bluffing. They appear to be betting there will be one more quarter-point increase, before the Fed starts to cut rates in the latter half of 2023. Powell on the other hand stated in crystal-clear terms, “I don’t see us cutting rates this year.”


Related posts