Investors have looked to Corporate America this week for direction and that will certainly continue today with a slew of quarterly earnings released since yesterday’s closing bell. The big news was the latest results from Facebook parent company Meta Platforms (FB), and Wall Street clearly did not like what it saw. The main problems were weaker profit margins and earnings, as well as disappointing guidance. A decline of one million active daily users of the Facebook platform in the U.S. and Canada last quarter also unnerved investors. Meta Platforms shares are down more than 20% in pre-market trading and are looking at a significantly lower start today. The same will hold true for Spotify Technology S.A. (SPOT), even though the music streaming company reported strong quarterly results. For this internet-based business too, Investors were disappointed with the expectations the company stated as to future growth in subscriber counts. Both FB and SPOT, by the way, continue to be the subjects of considerable social and political controversy. Overall the equity futures, most notably those of the technology heavy NASDAQ, are indicating a lower start for the U.S. stock market.
The new day also will bring some important reports on the economy, including the reading on January nonmanufacturing activity and the latest factory orders data at 10:00 A.M. (EST). Earlier this morning, we learned that initial weekly unemployment claims for the week ending January 29th came in at 238,000, which was a drop of 23,000 from the previous week’s revised figure. Meanwhile, productivity climbed 6.6% last month after declining sharply (-5.2%) in December. Of note, labor costs rose just 0.3%, versus the expectation for a 1.5% increase.
Turning back to earnings, the dour reactions to the aforementioned disappointing releases are likely to weigh on a technology sector that had rebounded sharply in recent trading sessions from a disappointing January, on the strength of strong quarterly results from fellow mega-cap technology companies Microsoft (MSFT), Apple (AAPL), and Alphabet (GOOG). The disappointing result from Meta Platforms is pressuring shares of fellow social-media platforms, including Snap (SNAP), Twitter (TWTR), and Pinterest (PINS). That said…
The news was not all bad on the earnings front. We did receive some positive quarterly results from AT&T (T), T-Mobile US (TMUS), and Qualcomm (QCOM) yesterday afternoon, though shares of those companies are looking at divergent openings. There is likely to be some mild profit taking in Qualcomm after the stock ran up in price (+6% yesterday) heading into the quarterly release. This morning, the reports have been mixed for a few Dow-30 components. Pharmaceutical giant Merck & Co. (MRK) beat expectations on both the top and bottom lines in the fourth quarter, while Honeywell (HON) fell short of expectations, citing supply-chain disruptions for the weaker-than-expected quarterly performance.
Meanwhile, economic data earlier this week have been mixed. On Tuesday, the Institute for Supply Management reported a better-than-expected reading on manufacturing activity for January, but yesterday’s report on January private-sector payrolls from Automatic Data Processing (ADP) was very weak, with a decline of 301,00 positions, versus the expectation for a gain of 184,000. The week’s headline economic report will come before tomorrow’s opening bell, when the Labor Department reports January nonfarm payrolls and the unemployment rate. The government’s jobs report, like the ADP figures, may reflect the near-term impact of the sharp increase in COVID-19 Omicron variant cases this winter.
In general, investors had added to their positions in the higher-growth stocks the last four trading sessions, with many of these equities looking like bargains after the weak month of trading in January. In most cases, like Alphabet yesterday, it has been good quarterly results that have prompted the move back into the stocks that sold off last month. But when companies fall short of expectations, like Meta Platforms yesterday afternoon and Netflix (NFLX) last week, shares of the higher-growth stocks, and ones that were high fliers during the pandemic era, have felt the wrath of Wall Street.
We think that investors should, once earnings season is in the history books, pay significant attention to inflation and the Federal Reserve’s stance on monetary policy. Stocks have historically not performed as well when our central bank tightens the monetary reins (i.e., removes some liquidity from the financial system), and we suggest investors keep some cash on the sidelines to prepare for the possibility that surprises out of the lead bank will cause further bumps in the road as the Market moves through 2022.
– William G. Ferguson
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
