Intel and Snap pulled the Nasdaq lower on Friday, setting up questioning week for the third quarter earnings season that will be put to an immediate test early Tuesday morning (Sydney time) when Facebook reports its latest results.
It’s the biggest week of the reporting season – Wednesday and Thursday especially.
All up around 46% of the S&P 500 companies are due to report this week.
Analysts are confident about earnings – the US economy is doing well, despite an expected fall in third quarter economic growth to be revealed late this week.
That is at odds with what we saw in Friday’s release of early surveys of business activity across the US in October which were very solid and pointed to continuing strong levels of demand even with the well-known problems in the economy.
These include inflation, supply chain problems and computer chip shortages which were mentioned in the surveys and will also get plenty of attention this week in quarterly reports from across the economy.
The IHS Market survey of business activity surprised on the upside in October. The overall index now stands at 57.3, up from 55 last month, with the services sector index at 58.2, a three-month high and up from 54.9 in September.
Manufacturing slipped to 59.2 from 60.7 in September, registering a seven-month low.
Those chip shortages will be central to investor interest for Apple’s report (its 4th quarter, it balances for the year at the end of September) after suggestions it could see a 10 million unit drop in iPhone sales this quarter because it can’t get enough gizmos.
The current quarter isn’t being reported on by Apple, but that won’t stop questions being asked about the impact of chips – Apple has launched its new models of the iPhones, macs and several other products in the past month.
The early spate of strong earnings reports has helped lift the S&P 500 to fresh record highs, with the benchmark index rising 5.5% so far in October.
The market’s gains this month have been led by sectors seen as particularly sensitive to swings in the economy, including energy and financials, which have gained 11% and 8%, respectively. The S&P 500 technology sector is up 6% month-to-date.
Many tech-focused companies received a boost in the wake of the pandemic, amid a shift in consumer behaviour in the economic lockdowns and a move to working from home.
“The question then becomes, can they keep it up?” said Sameer Samana, senior global market strategist at Wells Fargo Investment Institute. “What do the growth rates look like for large tech?” Reuters reported.
In September, the index posted its biggest monthly percentage drop since the pandemic began in March 2020.
Besides the tech majors, big oil will report on Friday especially with quarterly results from Exxon Mobil and Chevron that will show large gains.
Manufacturers such as Caterpillar, Dana, Boeing, Raytheon, Ford and GM are also due to report, while consumer giants like Coca Cola, Starbucks, McDonald, Yum, Yum Brands China, 3M and Colgate Palmolive will also release their figures.
Watch for these companies in particular to talk about the impact of supply chain (shipping, containers and other transport problems), higher oil and petrol pricing, computer chip shortages and for most to worry about inflation and rising costs.
Apart from the new fears about some tech company revenues, inflation and the supply chain problems – and labour shortages – will be the dominant issues mentioned in reports and conference calls this week.
As of last Friday, around 22% of S&P 500 companies had reported.
81% of June quarter earnings reports to date have exceeded expectations with an average beat of 13%. According to the AMP’s chief economist, Shane Oliver,
This is down from the blow out recovery numbers seen in the previous few quarters but still above the norm which has seen 76% beat.
Both Intel and Snap after both companies reported disappointing earnings. Intel shares fell 11.6% after reporting weaker than forecast sales but more important was the disclosure in the Snap result that its key advertising business had been hobbled by Apple’s newish privacy changes.
Snap shares slid 26.5% on Friday to take the week’s loss to a nasty 28%. That saw Facebook shares lose 5% while other tech stocks were also weaker and the Nasdaq dropped almost one per cent.
Besides Facebook, other tech majors reporting this week include chipmaker, AMD, Alphabet (Google), eBay, Amazon, Apple, Texas Instruments, Twitter and Microsoft.
While Apple and Amazon report on Thursday and Friday respectively, the shape of the reporting season could be decided by Facebook’s figures and those of Alphabet, with both companies heavily dependent on ad revenues.
If there is no sign of a repeat on its ad revenues from the Apple privacy changes, then investors’ worries will ease, especially if Alphabet’s report.
Other companies down to report (in no particular order) include Brazilian miner, Vale, Newmont, the world’s biggest gold miner, GE, Hess Corp, Comcast, Moody’s, S&P Global, Lockheed Martin, Grumman, General Dynamics, Mastercard, Visa, Merck & Co, Bunge, Xerox, NCR, Hasbro, MSCI, Archer Daniels Midland and Eli Lilly.