Tech Earnings Slow Market Growth

To start 2023, Big Tech drove a rapid recovery in US markets. Not so fast, according to their earnings report from last Thursday.

Investors were not pleased with the results that Apple Inc., Alphabet, the parent company of Google, and Amazon.com reported for the final quarter of the year. In light of the revelations, additional concerns have been raised over the state of the global economy, the impact of rising interest rates, and whether the market’s January surge was premature.

Chinese consumer expenditure was showing some early signs of recovery, but they were insufficient to reverse this.

Apple, the biggest publicly traded firm in the world, underperformed forecasts due to reduced iPhone sales and production delays in China. Due to decreasing demand, Amazon warned that operating profitability could decline this quarter, and Alphabet’s online marketers reduced their spending as well.

Following a jubilant gain on Thursday, the market was anticipated to decline on Friday as a result of the three firms’ shares falling when the results were announced.

According to Daniel Morgan, senior portfolio manager at Synovus Trust Company in Atlanta, Georgia, “Maybe the tech stocks jumped a little bit too much into these data, so the market will be taking a long breath and saying, “OK, well these firms aren’t invincible,”

These three companies have led the broad-market S&P 500 in 2023, along with Microsoft, among the four US companies having trillion-dollar market values. Year to date, the index is up about 9%, with Amazon up 34%. Following a great quarterly report from Meta Platforms Inc., the owner of Facebook, Big Tech increased on Thursday.

The group had suffered throughout 2022, falling behind the S&P, which fell by around 20%.

When Apple and other leading companies, like Starbucks, released their earnings reports on Thursday, some investors found a silver lining. They observed that many businesses in the second-largest economy in the world saw their sales stifled by lockdowns in China, but they anticipated a recovery in the upcoming year.

According to Apple Chief Executive Tim Cook, “We did witness an improvement in traffic to our stores as compared to November and an increase in demand as December rolled around.” “In December, operations resumed (in China).

Lockdowns in China, according to Cook, hurt both supply and demand, and the corporation also encountered challenges from a strong US dollar, which reduced revenues.

About the dollar’s declining trend, Nancy Tengler, chief executive of Laffer Tengler Investments in Scottsdale, Arizona, remarked, “Currency was a headwind but will be a tailwind in Q1.”

More so than demand, the supply chain “was a concern, but that seems to have been right-sized.”

In a similar vein, Starbucks reported that while comparable sales in China, the company’s fastest-growing region, were down 29% year over year, they began to show an “extremely positive” recovery trend in January.

Other US consumer bellwethers provided conflicting information. Large consumer goods manufacturer Clorox reported declining product volumes in three of its four business areas in the fourth quarter, while automaker Ford predicted a challenging year.

They continue to struggle with increased lending rates that are hurting demand, along with other businesses. Bond prices have increased as well, which has contributed to this year’s stock market boom as lower yields make highly valued companies more appealing. Some investors believed that demand is being impacted by interest rates as a result of Alphabet and Meta’s cost-cutting efforts.

In many ways, Jack Ablin, co-founder, and chief investment officer of Cresset Capital, which oversees $30 billion, said, “We’re waiting for the other shoe to drop. The impact of rising rates on the economy, inflation, incomes, and jobs.” Since overnight rates haven’t even reached their high yet, profits typically decline nine months after they peak.