Apple ‘Enriches Lives,’ Amazon Soars As Mega-Tech Earnings Wrap
Amazon and Apple closed the book on mega-cap tech earnings Thursday, as US equities looked to ride a rollicking post-FOMC rally to a second consecutive weekly gain.
Amazon is the subject of intense investor scrutiny on several fronts. In addition to giving market participants another window into the worried minds of inflation-weary consumers, the company's results were eyed in the context of last quarter's report, which foreshadowed an overcapacity problem now plaguing many of America's largest
I thought results from meg-cap tech might keep markets buoyant (they have), but I really didn’t see rates collapsing). Bonds and stocks are telling wo different stories and only one can be right. I think we see some of the air coming out of equities next week as non-tech reports; I have no idea what bonds are going to do.
Don’t forget, though, that falling bond yields are a big boon for long-duration equities, which still comprise a huge percentage of index market cap. So it’s actually pretty intuitive that you’d get a simultaneous rally even if you wanted to characterize the drop in yields as indicative of a recession that stocks should be reacting to by selling off. Five-year reals are 30bps lower (!) in two sessions, 10-year reals ~25bps lower. That’s rocket fuel for equities and especially high-multiple growth
If I understand you correctly: efficient markets are not allocating to bonds with low yields, instead money flows to the usual “perptual motion machines” (with dividends!)…
Big Tech are best positioned to weather a downturn: They have all the data and can turn on a dime, like Amazon cutting 99k jobs (sounds like a lot to a union even if it’s small compared to 1.5M employees).
I guess though the market is signaling it thinks the rate hikes are almost done and are looking through to growth? (Could it be the bottom, I guess only Inflation and the Fed really know?)
Looking at last 1 week’s performance, the mega techs are all green (save META) if you include aftermarket move in AMZN.
Interestingly, L1W looks just as or more positive for a lot of names, large and small, tech and otherwise. Looking at the sector ETFs, the best L1W performance is in XLU followed by XLRE XLE XLI XLP and only then do we get to XLK, about midpack.
I dipped a toe in some of the mega-techs a couple months ago. Comparing these fancy shiny names to the otherwise motley collection of names in the portfolios, AMZN (assuming aftermkt move holds) will have the best L1W perf – but not by that much. MSFT is +4.4% L1W, GOOG is still down a little. META is impressively bad.
Basically, this has been a broad move that was pretty forgiving, for relative performance – you didn’t have to own mega-tech to pace or beat SP500.
What does Mike Wilson think of all of this?
https://finance.yahoo.com/m/f07e6403-70ed-3e40-a80a-e321a2c59523/stock-market%E2%80%99s-post-fed.html
Amazon is cruising toward a half trillion in revenue and an operating profit that requires a magnifying glass to see. Frankly, I have never owned this because I can’t see the point. Investments are supposed to be supported by earnings. This one is mostly based on promises. Even if they net $8 bil for 12 mos, compared to revenue of 500 bil the margin would be just over 1%. Big whoop.
It’s mainly a play on cloud computing via AWS. (There are some nascent signs that the spectacular growth in cloud adaptation is slowing.) the retail side operates as a loss leader to some extent. I do think that they still have more upside from selling targeted advertising.
AMZN has always been a promise name, idea being that someday they will stop investing all margin into growth, and profits will appear. It has also been a cash flow name, rather than an EPS name.
Since 2020, revenue has grown hugely and AMZN has invested more hugely in capacity, so with revenue slowing it has too much capacity (heads, sq ft, capex).
On paper, AMZN can ease off expense and capex, and increase profit and cash flow very greatly, while remaining a growth name. Whether it will, we’ll see.
I started nibbling after the 1Q blowup, hoping that Jassy doesn’t have Bezos’ growth-uber-alles mindset.
I think AWS alone can’t drive the story from here.