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Earnings round-up: On a knife-edge

A delicate week ahead for the American stockmarket, with December quarter financial reports from Alphabet, Amazon and Apple on Thursday – all of which could further fuel or entirely extinguish the market’s gathering rebound.

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The trio of reports could very well blot out the ripples from any rate rises by a trio of major central banks, especially the Fed.

Given all the words and worries about inflation, recession and the impact on earnings, the strength of Wall Street and especially the tech-heavy Nasdaq at the start of 2023 has been surprising.

But easing interest inflation pressures have convinced many investors that the days of big rate rises from central banks is over and that economies could escape a recession and dip into a soft landing, which would be more positive for revenues and earnings.

With over 100,000 tech jobs gone since late 2022, investors seem to be applauding the losses and doing their usual trick of rewarding the cutters and punishing those not joining in the parade.

Alphabet and Amazon have already joined the cuts and that’s probably why their shares have done well this month after 2022’s sell off.

Apple has been quiet on jobs and will lead the trio of mega companies reporting on Thursday. Their financials – which are not expected to be particularly buoyant – will be examined and dissected for their health and sustainability.

Under pressure Meta Platforms reports on Wednesday and though it has been left far behind by its former FANG rivals, it is still a headline grabber. Investors have discounted the ability of Meta’s results to influence investors, except in a negative sense.

The quality of these reports will go a long way to convincing investors that big tech is back as an investment story.

First Netflix laid down some rubber with much stronger subscriber numbers for the December quarter, but Microsoft disappointed last week with weaker than expected figures and a gloomy outlook (and job cuts).

But Tesla then helped drive the rebound higher (especially on Nasdaq) with better-than-expected sales and earnings for the December quarter. Elon Musk helped for once in the past year by reappearing to grab the headlines with optimistic (and sensible-sounding) comments on car production, costs and future prices which halted the stock’s collapse.

As a result, Tesla shares surged 33% last week, their best weekly performance since May 2013 and second best on record.

The shares rose 11% on Friday to close at $US177.88. That was after another 11% rise on Thursday in the wake of the afterhours reporting on Wednesday and Musk’s comments.

Tesla shares had slumped 40% over the closing months of 2022 on growing fears about its performance with weaker sales in China, price cuts and a CEO whose attention was being diverted from the carmaker by his silly $US44 billion takeover of Twitter.

The 65% plunge in the share price in 2022 was its worst in Tesla’s 12-plus years as a public company.

And yet, in a day or two, all the fears seem to have been wiped away and if one or two of the three giants to report on Thursday follow Tesla with an upbeat performance or outlook, that could be enough to send the tech sector racing higher.

For all the bad news about tens of thousands of job losses at Amazon, Microsoft, Alphabet, Meta and other tech sector leaders, the reaction on Wall Street is very, very different.

Nasdaq is up more than 11% so far this year – it fell 34% in 2022.

That 33% rise in Tesla shares has happened quickly but its big rivals have also been on the rise. So far in 2023, Apple shares are up nearly 17%, Amazon shares are up over 19% and Alphabet shares have risen more than 11%.

They would be solid annual rises but if these reports are weak – especially outlook comments for the rest of this year, then the rally could stall.

Paradoxically, if any or all of the trio are seen confronting their problems (and the job cuts at Amazon and Alphabet confirm that), then the rally will probably continue.

Apple remains the key – it has been quiet, no reports of mass sackings, no whispers about weak sales in China. A confident update from the iPhone giant could reinforce the rebound and power it higher.

Apple’s market value is now at $US2.3 trillion, up sharply from just under $US2 trillion on January 3.

Netflix shares have added 22%, while Microsoft shares ended the week up 3.6% for the year so far despite the weak quarterly forecast and figures.

Meta shares are up more than 21% year to date as investors regain confidence in the company and its CEO Mark Zuckerberg.

But its market value of just under $US400 billion is still down 50% over the last year.

Amazon’s value is now back over $US1 trillion after falling under that level last November. Alphabet’s value has jumped to $US1.3 trillion this week

Other US-based electric vehicle makers saw their shares climb higher.

Rivian shares rose 22% over the week, while shares in old line carmakers Ford and General Motors each rose more than 7% (both car companies release December quarter and 2022 figures this week.

Rival electric car manufacturer Lucid soared on Friday as well, rising 43% on rumours that Saudi Arabia’s sovereign wealth fund, the Public Investment Fund, intended to take the company private. Lucid shares surged 44% on the day.

As a result of last week’s surge Elon Musk stays the world’s second-wealthiest and the nation’s richest particular person, Musk’s $US180.7 billion worth was $US20.7 billion bigger than it was on Wednesday before the release of the quarterly report and Musk’s comments on the investor briefing.

These results will overshadow figures from a lot of other leading companies. Exxon Mobil is out late today, along with McDonald’s and Caterpillar. Shell is out February 1 and besides Apple, Alphabet and Amazon, Thursday sees reports from Starbucks, Sony and News Corp. Meta Platforms reports on February 1.

Up to Friday 30% of S&P 500 companies have now reported December quarter earnings. The AMP’s Chief Economist, Shane Oliver says that so far 71% of results have come in better than expected “which is well below the norm of 76%.”

“Consensus earnings expectations are for growth of -2.6% on a year ago, but given the average beat rate of around 2.5% its likely to end around flat.

“Energy and industrials are coming in the strongest but with materials, telcos and tech seeing falls in earnings with warnings of softer demand from the latter,” Dr Oliver wrote in his weekend note.

Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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