U.N. climate talks in the Egyptian resort of Sharm el-Sheikh, known as COP27, get underway this week, with many of the parties looking for concrete pledges to combat the damaging effects of climate change. It’s a trend that’s been seen since the 2015 Paris Agreement to curb warming at 1.5 degrees Celsius above pre-industrial levels, where progress is yet to be made despite many workshops, summits and conferences. “Moving from negotiations and pledges to an era of implementation is a priority,” said COP27 President Sameh Shoukry, adding that now was the time to put the money on the table.
Snapshot: Greenhouse gases like carbon dioxide, methane and nitrous oxide reached new record highs in 2021, while increasing temperatures, a loss of biodiversity and extreme weather events like floods and hurricanes are said to be growing in intensity. It doesn’t help that the globe is dealing with an energy crisis at the same time that fossil fuel manufacturing usage is being outsourced to developing nations, where deregulation of environmental protections has been used to advance their economies. This can even be seen among countries that are powering the green revolution, like nickel smelting for EV batteries, with further criticism being leveled at the sustainable commitments of some of the world’s most profitable companies.
Backlash against Coca-Cola (NYSE:KO), one of the planet’s biggest users of plastic, erupted as soon as the multinational announced that it would sponsor the COP27. While the company has pointed to its signing of a global treaty meant to tackle plastic waste through a “holistic, circular economy approach,” as well as plans to collect and recycle a bottle or can for every one it sells by 2030, many say the policies are misleading and fall way short. Coca-Cola currently produces 120B single-use bottles per year, resulting in 3.3M tons of plastic packaging (its plastic use even rose by 8.1% between 2019 and 2021).
Go deeper: Greenwashing claims aren’t limited to corporations. At a U.N. climate summit 13 years ago in Copenhagen, rich nations promised to hand developing countries $100B each year by 2020 to help them adapt to climate change, though that hasn’t materialized yet (last year’s COP26 pushed the target to 2023). The negotiations ultimately boil down to questions of fairness and trust, as well as accountability and enforcement mechanisms that will ensure the money will be spent appropriately. On tap this year are also talks centering around climate reparations, or “loss and damage” payments, to countries that cannot afford to defend themselves against climate risks. (3 comments)
A lot of disruption is going on in the tech space, with knock-on effects being seen across the whole industry. An example of this is the recent advertising debacle witnessed during Snap’s (NYSE:SNAP) earnings, which foreshadowed the stock plunges of Big Tech the following week. While it is no longer publicly traded, the fact that Twitter axed half of its workforce on Friday could inform investors in other social media platforms of what might be coming in the not-so-distant future.
Case in point: Meta Platforms (NASDAQ:META) is planning to begin large-scale layoffs this week, according to the Wall Street Journal. The firings are expected to impact “many thousands of employees” of the company’s more than 87,000-strong workforce, with Meta even telling staff to cancel non-essential travel. Shares of META have tumbled 35% over the past month and more than 70% YTD amid intensive spending on the metaverse and threats to the firm’s core social-media business (free cash flow tumbled 98% in Q3).
What is still to be seen is if any of the big editorial changes at Twitter will end up impacting Facebook, Instagram, Messenger or WhatsApp. So far, Chief Twit Elon Musk appears to be making a lot of rules on the fly, and a tweetstorm over the weekend pointed to additional adjustments in the making. “Previously, we issued a warning before suspension, but now that we are rolling out widespread verification, there will be no warning,” “any name change at all will cause temporary loss of verified checkmark” and “going forward, any Twitter handles engaging in impersonation without clearly specifying ‘parody’ will be permanently suspended.”
Too far, too fast? Bloomberg reported that Twitter is reaching out to dozens of employees who lost their jobs and asking them to return. Some of those who are being asked to come back were “laid off by mistake,” while others “were let go before management realized that their work and experience may be necessary to build the new features Musk envisions.” The NYT also suggested that Twitter would delay its $8/month model – for blue check verification marks, less ads, the ability to post longer videos and priority ranking for quality content – until after the midterm elections. Will Meta eventually go subscription? (6 comments)
Talk of an iPhone production disruption has been swirling since last week, but the company just made it official. “We now expect lower iPhone 14 Pro and iPhone 14 Pro Max shipments than we previously anticipated and customers will experience longer wait times to receive their new products,” Apple (AAPL) said in a statement. “COVID-19 restrictions have temporarily impacted the primary iPhone 14 Pro and iPhone 14 Pro Max assembly facility located in Zhengzhou, China. The facility is currently operating at significantly reduced capacity.”
Snapshot: The Zhengzhou campus of Apple supplier Foxconn (OTCPK:FXCOF), better known as iPhone City, employs around 200,000 people and even includes dormitory accommodations for workers. The company is working to boost production at another factory in Shenzhen to make up for the shortfall before the holiday season, but China’s zero-COVID policy may also hamper output elsewhere. Foxconn (FXCOF), which produces 70% of iPhones globally, also builds the device in India, but its Zhengzhou factory assembles the majority of its global output.
“As we have done throughout the COVID-19 pandemic, we are prioritizing the health and safety of the workers in our supply chain,” Apple declared, adding that there was continued demand for iPhones. AAPL was the only stock to rally following Big Tech earnings in late October, but shares slumped 10% over the past five sessions to record their worst weekly performance since March 2020.
Commentary: “Although Apple earnings were only a week ago, supply shortages at the high end of the market and recent COVID lockdowns in China impacting a Foxconn plant could negatively impact iPhone units in the December quarter,” UBS analyst David Vogt wrote before Apple’s press release. “While we believe iPhone demand tends to not be perishable, a slippage of a couple of million units is possible below our 86M forecast.” (81 comments)
Broader market earnings will go nowhere next year, according to the latest forecast from Goldman Sachs. Strategist David Kostin said S&P 500 (SP500) margins have inflected downward, and as a result, he is trimming the S&P EPS forecast for 2023 to 0% growth from 3%.
Quote: “Following a weak Q3 earnings season in which S&P 500 net margins declined year/year for the first time since the pandemic, we lower our EPS forecasts for 2022 (to $224 from $226), 2023 (to $224 from $234) and 2024 (to $237 from $243),” he wrote in a research note. “The revised estimates reflect annual growth of 7%, 0%, and 5%, respectively. We model sales and margins separately, given the nuanced impact of various macro factors on each variable. But economic growth is the primary driver of EPS growth.”
Goldman still expects a year-end S&P 500 target of 3600 (-5%) in 2022 and 4000 (+6%) in 2023, given a notable exception to the downturn in the energy industry. “The backdrop of high oil prices and capex discipline has provided an earnings tailwind to energy firms. Net margins during the first three quarters of the year equaled 14%, the highest level on record.”
Other risks: “In a [moderate] recession, we expect S&P 500 EPS would fall by 11% to $200. Our economists assign a 35% probability of recession in the next 12 months and note that a recession would likely be mild given the lack of major financial imbalances in the economy. However, many equity investors believe a recession will begin at some point during 2023. A deeper or more prolonged recession poses downside risk to our recession scenario EPS. Revisions to bottom-up 2023 EPS estimates have been particularly sharp this year, but we see room for further cuts.” (73 comments)
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