It was shaping to be a great week for US stocks, particularly at the riskier end of the spectrum in the tech and small cap space as investors saw the US Federal Reserve's latest increase as signalling the beginning of the end of this rate hiking cycle.
The 25 basis point hike was broadly as expected, but while Fed chair Jerome Powell warned further action was necessary he hinted at only a couple more increases.
However, disappointing quarterly earnings from Apple (AAPL:NASDAQ), Alphabet (GOOG:NASDAQ) and Amazon (AMZN:NASDAQ) on Thursday night were a bit of a mood killer.
Strong results from oil and gas firms were a double-edged sword for the sector as comments from the Biden administration suggested they could result in more windfall taxes.
Shares in gaming firm Electronic Arts (EA:NASDAQ) slumped as the company's outlook on the current quarter was hit by a delay to a hotly anticipated new title linked to the Star Wars universe.
META PLATFORMS
Shares in Facebook parent Meta Platforms (META:NASDAQ) surged more than 20% after forecasting stronger than expected first quarter revenues, boosting productivity and increasing share buybacks.
The jump in the shares comes after they have lost more than 60% of their value over the last two years.
The social media giant signaled a rebound in digital advertising following months of falling sales, forecasting first quarter sales of between $26 billion and $28.5 billion.
The new guidance topped analysts' estimates of $27.14 billion according to Refinitiv data and if delivered would see the company returning to year-on-year growth. After spending $27.9 billion on share buybacks in 2022 the company intends to increase the pace to $40 billion.
Meta lowered guidance on capital expenditures by around 11% to between $30 billion and $33 billion as it moves to a more efficient data centre architecture.
The company is also looking to rein in operating costs and now expects them to be around 3% lower at between $89 billion and $95 billion based on a slower than anticipated growth in payrolls. Meta announced 11,000 job cuts in November 2022.
ALPHABET/AMAZON/APPLE
For years, big tech companies drove the stock market higher, making a lot of investors rich along the way. November 2021 saw the party come to an end, with rising interest rates leading a big sell-off in growth stocks including the tech names.
That rout lasted until the start of 2023 when we started to see the first signs of a recovery in tech stocks. Sadly, this recovery has been stopped in its tracks by disappointing quarterly figures from Amazon, Alphabet and Apple.
Amazon's shares fell 5.2% in after-hours trading on Thursday as it flagged demand weakness in cloud computing, its key profit driver in recent years. The company talked about customers cutting their budgets and trying to find ways to trim spending in cloud services. That suggests a difficult period ahead for the group as its fortunes are judged more these days on cloud activity than retail.
Concerns about the economy have led many businesses to cut back on advertising which has acted like a blow to the stomach for Alphabet, along with unfavourable foreign exchange rates. Its shares fell 4.6% in after-hours trading following disappointing quarterly results, which suggests that investors remain nervous near-term.
In the conference call, Alphabet talked a lot about AI (artificial intelligence), which is timely given the competitive threat from Microsoft-backed ChatGPT which stands to revolutionise the way we obtain information.
Chief executive Sundar Pichai said: ‘More than six years ago, I first spoke about Google being an AI-first company. Since then, we have been a leader in developing AI.
Very soon, people will be able to interact directly with our newest, most powerful language models as a companion to search in experimental and innovative ways. Stay tuned.’
The fact Apple has suffered production issues for the iPhone is old news, which might explain why its share price fell by the least amount (-3.2%) of the trio of tech firms issuing quarterly results on 2 February.
While earnings disappointed, there were some bright spots which gave many investors reason to stay optimistic. First, production issues have been sorted out. Second, Apple has a potentially large tailwind for earnings in the coming months as China reopens and people start to spend more.
Third, Apple's services business hit an all-time revenue record of $20.8 billion. The company makes money from selling handsets and devices and then collects a regular stream of subscription payments afterwards as people are plugged into its ecosystem, paying for things like music and film streaming and fitness activities.
EXXONMOBIL
Energy giant ExxonMobil (XOM:NYSE) smashed not only its own earnings record but set an historic high for the most profits ever recorded in a single year by an oil company.
The Houston-based firm posted $59 billion in adjusted profit last year - or more than $6.7 million per hour - obliterating its previous record of $45 billion racked up in 2008 when oil prices topped $140 per barrel.
Chief financial office Kathryn Mikells euphemistically described earnings and cashflow as being ‘up pretty significantly’ due to ‘a combination of strong markets, strong throughput, strong production and really good cost control’.
A European windfall tax of $1.1 billion in the fourth quarter barely made a dent in the group's earnings, which were more than double those of the previous year.
The results drew criticism from the White House, which described it as ‘outrageous that Exxon has posted a new record for Western oil company profits after the American people were forced to pay such high prices at the pump’ and accused the company of ‘padding the pockets of executives and shareholders’.
