Until Thursday's sell-off, US stocks had been enjoying their best run for several years, with more than a week of back-to-back gains for the S&P 500 and the Nasdaq, leading commentators to predict a ‘Santa rally’ into the end of the year.
At the same time, investors seem to be betting the US economy is back in ‘Goldilocks’ territory, where growth, employment and inflation are ‘just right’, meaning they're not so hot as to require the Federal Reserve to raise interest rates but not so cold as to cause a recession.
Without wishing to be party-poopers, we should flag that market breadth has been falling during this latest rally, meaning fewer stocks have participated, while the VIX or ‘fear index’ has tumbled as investors have jumped aboard as prices rise suggesting a high degree of complacency.
Therefore, what happens over the next week will tell us a lot about where the market goes in the medium term, so there is a lot riding on earnings from a clutch of retailers such as Home Depot (HD:NYSE), Target (TGT:NYSE) and Walmart (WMT:NYSE) on one hand, and tech stocks such as Applied Materials (AMAT:NASDAQ), Cisco (CSCO:NASDAQ) and Palo Alto (PANW:NASDAQ) on the other.
EBAY
Will consumers be willing to splash the cash this Christmas? It’s a pertinent question with so many businesses tied to the annual holiday splurge, but not everyone is feeling the festive spirit, including Ebay (EBAY:NASFDAQ).
The $20 billion retail platform’s December-quarter guidance implies a revenue miss of between 3% and 5% to the existing analyst consensus of $2.6 billion, while earnings may also struggle to match expectations. Consensus is pitched at $1.05 per share, at the very top of Ebay’s $1.00 to $1.05 range.
Not everyone is gloomy – the US National Retail Federation, the industry’s main cheerleader, is anticipating a 5% increase in consumer spending this year, but other recent studies (Deloitte, Accenture) are more humbug.
Ebay shares initially tanked 6% after its update, yet they have recovered most of those losses since, implying investors are willing, for now, to throw another coal on the fire and bask in the relative warmth of optimism.
DISNEY
Walt Disney’s (DIS:NYSE) latest earnings may have beaten expectations, but the House of Mouse is still in a bit of mess despite returning chief executive Bob Iger's declaration to investors that the business is entering a new ‘era of building.’
Under Iger, revenue grew by 5% in the three months ending September 2023 to $21.2 billion and the company reported profit of $264 million for the quarter and nearly $2.4 billion for the year to date.
The shares ticked up to $84.50 on the news, but are Disney’s plans to cut costs by another $2 billion enough to turn the 100-year-old company around?
The entertainment giant previously announced $5.5 billion of cost-cutting measures including 8,000 job losses: this latest initiative will not involve more job cuts, says Iger, but its struggling linear TV business is in the firing line.
Iger also has his eye on making the Disney+ streaming business profitable, as it has yet to turn a profit despite subscriber numbers being up 1% in the US and Canada and 11% internationally.
ROBLOX
Children’s gaming platform Roblox (RBLX:NASDAQ) saw its shares jump 12% on Wednesday 8 November after third-quarter results beat Wall Street estimates driven by strong demand for its popular games Adopt Me and Murder Mystery 2.
Net bookings, which are generated from in-game purchases of Roblox’s virtual currency Robux, increased 20% to $839.5 million which was above analysts’ forecasts of $830.2 million.
The company revealed a 20% annual increase in average daily active users to 70.2 million as revenue jumped 38% to $713.3 million. The number of hours spent on the platform increased 20% compared with the same period last year to 16 billion.
Despite this growth, Roblox reported a net loss of $277 million for quarter compared with a loss of $298 million a year earlier. However, the company generated $60 million of free cash flow after slashing capital spending by 60%.
Roblox launched on Meta Platform’s (META:NASDAQ) mixed virtual reality headset Quest in September generating two million lifetime installs.
The shares are up 36% year to date but trade around 70% below all time highs reached during the metaverse-inspired ‘craze’ two years ago.
