Once again, we find ourselves riffing on the Dinah Washington jazz classic, ‘What a difference a day makes’. Barely 24 hours earlier US markets were all sporting weekly gains, but another bad session for ‘Big Tech’ stocks pushed the Dow and the Nasdaq into negative territory and sent the Russell small-cap index sharply lower.
Investors had hoped that latest earnings from Apple (AAPL:NASDAQ) and Amazon AMZN:NASDAQ) might have given markets the lift that other big names, Microsoft (MSFT:NASDAQ) for example, had failed to provide, but no dice, Apple perhaps best described as fairly dull, and Amazon a flop.
A softer Manufacturing PMI (Purchasing Managers Index) reading, especially in relation to new orders and hiring, haven’t helped to mood, sparking fears the US economy is slowing too fast and the Federal Reserve is behind the curve in terms of cutting interest rates.
Higher-than-expected jobless claims added to those fears, so if today’s non-farm payrolls figure and the unemployment rate confirm the US economy is weakening there could be further selling of stocks into the weekend.
Consumer staples, healthcare, real estate and utilities – in other words safe-haven and value sectors – have outperformed over the past week, which is consistent with historic trends, according to Fidelity.
‘While risk-on sectors tend to do well from November to April, defensive sectors tend to do better over the summer and autumn.’
META PLATFORMS
The social media giant is fully committed to investing now for returns tomorrow but unlike other big tech names, investors gave Meta Platforms (META:NASDAQ) the benefit of the doubt despite being out on notice for higher capex down the line.
It might be tricky to turn a profit on vast AI (artificial intelligence) investment for many companies this early in the transformation, but Meta is among those that are already making hay in the sun.
For the three months ended 30 June 2024, Meta reported earnings of $5.16 per share on revenue of $39.07 billion, beating estimates of $4.7 and $38.26 billion, respectively.
That Meta is also returning vast sums to shareholders, with buybacks worth $6.32 billion of Class A stock and dividends of $1.27 billion in Q2 certainly helps the investment case, as does its valuation, which remains low relative to other stocks.
Up 7% over the past week, the mood around Meta suggests the stock could blast past all-time highs of around $540 (chalked-up early in July) all the way to $590 or more, believe analysts.
APPLE / AMAZON
Dampening optimism around AI and big tech means stocks must not just beat expectations but show a clear path to bigger profits from vast investment, and Apple and Amazon both failed to get investors excited.
Apple reported quarterly revenue in line and profit above estimates b flagging iPhone sales in China remains a worry despite Services revenue, fast becoming the stock’s key growth lever, picking up the slack. Normally, a new iPhone launch, incoming later this year, might get people excited but company commentary suggests it will not be the AI-loaded handset customers are waiting for, which could further dampen demand, leaving the stock flat at around $218.
As for Amazon, revenue was 10% higher than the same time last year, landing at the $148 billion that analysts expected. The firm revealed a slightly worse-than-predicted performance from its online advertising business. Mind you, that was offset by solid revenue from Amazon Web Services – closely watched by the many investors that believe cloud services will be a major moneymaker going forward.
Even so, investors were far from blown away and the stock looks like falling sharply, down 8% based on pre-market data (2 Aug).
MATCH
There seems to be no stopping online dating app Match (MTCH:NASDAQ) after its quarterly revenue beat expectations and it announced plans to cut 6% of its global workforce, revealed alongside latest earnings, helping the stock rally 13% over the past week.
This wasn’t this first time Match shares have jumped. It surged in mid-July after activist investor Starboard Value revealed a 6.6% stake in the Tinder and Hinge owner. Starboard Value are not the only activist investor on Match’s shareholder register, with Neuberger Berman and Elliott Investment Management are all hoping to bring about change to boost shareholder returns.
No wonder, these have been dismal in recent years, -38% annualised over three years and -6% over five, versus 6% and 17% respectively for the Nasdaq.
A lack of innovation is a key issue, and falling subscriber numbers since the pandemic are a big worry. Where, investors wonder, are the fresh ideas?
