The stakes this week couldn’t be higher as Big Tech gets ready to dominate earnings season. While third quarter reports will pour in from every corner of the market, results from Microsoft (MSFT), Alphabet (GOOGL), Meta (META), Apple (AAPL) and Amazon (AMZN) are likely to define investing direction for many a trader. Combined revenue growth of the newly found FAANG family, now called MAMAA by Mad Money‘s Jim Cramer, is expected to have slowed to just under 10%, compared to a 29% increase in 2021 that took sales to $1.4T.
Bigger picture: Earnings from Snap (SNAP) already set a somber tone heading into the big parade, especially following the end of the pandemic digital boom that was compounded by soaring inflation. Fearful about a coming recession, many Big Tech companies have imposed hiring freezes, though some feel that the heavyweights have diversified their businesses enough to shield themselves from any advertising slowdown. A miss on estimates could still trigger panic, with outsized gains and losses becoming a trademark of this volatile market.
“The bar was set really low going into earnings season,” noted Gene Goldman, chief investment officer at Cetera Investment Management. “We were hoping for easier beats because everything had been revised lower, but the earnings releases we’re seeing now have not been that great.”
Market movement: According to FactSet, S&P 500 companies that have missed expectations this earnings season have fallen 4.7% on average in the two days before their report through the two days after, compared with the five-year average of 2.2%.
Stocks in Hong Kong and Shanghai closed out Monday’s session down 6.4% and 2%, respectively, amid a slew of concerns over the country’s economy. While third-quarter GDP growth beat expectations at 3.9%, the figure was way below China’s official full-year target of 5.5%, which is already its lowest goal in three decades. A large-scale property crisis and strict zero-COVID strategy have weighed on consumer spending, and there are additional economic fears as President Xi Jinping tightens his grip on power.
Quote: “This is panic selling,” said Dickie Wong, executive director of research at Kingston Securities. “Quite obviously investors are simply not confident about the future of the Chinese economy.”
During China’s 20th Party Congress, Xi was awarded with a third five-year term as leader of the ruling Communist Party, while the new Politburo Standing Committee was stacked with allies, loyalists and protégés. Xi also reaffirmed his Common Prosperity drive by pledging to “standardize wealth accumulation mechanisms” and by promoting “Chinese-style modernization.” Meanwhile, the Communist Party’s constitution was amended with strengthening “fighting spirit and ability,” while deterring separatists seeking independence in Taiwan.
Commentary: “Foreign investors and businesses have desperately searched for signs that liberals or ‘reformers’ will play a role in shaping the economy or bringing back an old economic order that prioritized foreign investment and liberalization of the economy,” said Drew Thompson, a visiting senior research fellow at the National University of Singapore. “It is clear from the outcome of the 20th Party Congress that national security and the party’s political security will take precedence over economic growth.” (24 comments)
The Biden administration is ramping up efforts to get more people in the U.S. boosted for COVID-19 after the program for bivalent jabs (targeting Omicron and the original strain) rolled out on Sept. 2. Warnings about a possible surge have been issued in recent weeks, with more people heading indoors before the holiday season. In fact, President Biden is set to get his updated shot tomorrow, following a three-month gap (referred to by the CDC) from when he last contracted COVID in July.
By the numbers: Uptake of the bivalent shot (the second booster approved following double dose vaccination) has been modest, with only about 20M Americans having received the jab. That’s despite all groups over 6 months of age being approved to receive the bivalent booster, and recommendations from the CDC to get inoculated if one is over 5 years old. The hesitancy comes as COVID weighs less on public life, questions surface about the vaccine’s level of effectiveness and worries abound over a never-ending cycle of boosters.
As the pandemic transitions to an endemic phase, London-based data analytics firm Airfinity expects a duopoly to dominate the COVID vaccine industry. “Pfizer/BioNTech (PFE, BNTX) and Moderna (MRNA) are continuing to benefit from first to market advantage and will continue to dominate the market for the foreseeable future,” Director Dr. Matt Linley wrote in a note. Skepticism still surrounds the financial prospects of COVID-19 vaccine markers, given a supply glut and uncertainty in demand. Revenue is predicted to decline by about 20% to $47B in 2023 after generating an estimated $60B in global sales this year (in line with 2021).
Cue the price hikes: Pfizer intends to raise the price of its COVID-19 vaccine around fourfold – to a range of $110-$130 per dose – when U.S. government-led procurements end next year. Moderna has also said it expected to charge $100 per dose for its vaccine, which was initially priced at $16.50. Stay on the lookout for updated price data from AstraZeneca (AZN), Johnson & Johnson (JNJ), and Novavax (NVAX), which were previously expected to charge $5-$16 for their COVID shots, according to Airfinity Analytics. (11 comments)
The White House may be at odds with Saudi Arabia, but American CEOs are signaling that things are business as usual. Top executives from JPMorgan (JPM) and Goldman Sachs (GS), as well as CEOs from Blackstone (BX) and Moelis (MC), are gathering for the Future Investment Initiative – popularly known as “Davos in the Desert.” The annual summit, which runs from Tuesday to Thursday, seeks to project the Kingdom as a dynamic investment destination, and draws 6,000 people and 500 speakers to Riyadh.
Tapping oil wealth: With much of the world concerned about the risks of inflation and recession, Saudi Arabia is standing out as a place that should warrant some extra attention. It’s swimming in its first crude boom in over a decade, and is even predicted to record GDP growth of over 8% this year as many developed economies struggle to stay positive.
“The savvy of Wall Street know their history well and know the difference between the short-term and political versus the long-term and strategic,” said Talal Malik, CEO of Alpha1Strategy. “With this kind of liquidity, it makes sense for U.S. investment firms to ramp up their attendance.”
Case in point: JPMorgan plans to expand its 100-strong team in the country with 20 new employees by the end of 2022, which more than doubles its size from 2016. Other U.S. financial firms are also setting up operations there, like Franklin Templeton, as the Kingdom raises pressure on multinationals to relocate their Middle East hubs to Saudi Arabia.
Be the first to comment