Apple And Alphabet Look To Amazon To Keep The Former FAANG Coalition Alive After Meta And Netflix Fall

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(Thursday Market Open) Equity index futures are pointing to a lower open as mega-tech Meta (NASDAQ: FB) and pandemic-play Spotify (NYSE: SPOT) disappoint on earnings and are pulling others down with them. Nasdaq futures were getting hit in premarket dropping more than 300 points.

After Wednesday’s close, the parent company of Facebook and Instagram Meta Platforms FB was down more than 23% in extended-hours trading after missing on earnings estimates. Rising costs hurt the company despite it beating on revenue estimates. The company’s stock price was hurt by higher expenses and a lower-than-expected earnings outlook. Meta dragged down other social media contemporaries in after-hours trading with Twitter (NYSE: TWTR) and Pinterest (NYSE: PINS) falling 8% respectively. These companies are struggling in the post-pandemic reopening trade.

The semiconductor group continues to be batted back and forth with earnings announcements. After the close, Qualcomm (NASDAQ: QCOM) announced it beat on top and bottom line numbers thanks in part to sales that grew 30%. QCOM also reported the chip supply shortage may be easing, which may help other industries like autos and medical devices —two of the largest groups hit by the shortage. The company also offered a better-than-expected earnings outlook. However, the stock still sold off in after-hours trading, falling 8.24%, but it has recovered much of its losses overnight is down just 1.44% in premarket trading.

The semiconductor group rose on Wednesday due to earnings news from Advanced Micro Devices (NASDAQ: AMD). AMD rallied 5.12%, helping the PHLX Semiconductor Index (SOX) rally 2.46% on the day. On Monday, NXP (NASDAQ: NXPI) announced positive earnings and fell throughout the morning but was able to rally back into the positive. The group continues to struggle with supply chain issues, yet it’s seeing a lot of demand and is backed up on orders. The high demand could be why investors appear to be struggling with how to value the group in a rising interest rate environment.  

Getting back to earnings, Spotify SPOT dropped more than 15% in after-hours trading despite reporting better-than-expected earnings and revenue. The problem came in that fact that the company failed to grow its subscribers at the expected pace. SPOT could be added to the group of pandemic stocks that are struggling to maintain growth in the post-pandemic economy.

The telecom sector appears to be getting boost after AT&T (NYSE: T) disappointed investors earlier this week. T-Mobile (NASDAQ: TMUS) is up more than 7% in premarket trading after beating on earnings and revenue. TMUS also offered an upbeat outlook for 2022 despite potential hurdles in its network merge with Sprint’s network. The company also plans to buy back more shares in the second half of 2022.

The Nasdaq Composite ($COMP) was set to lead the indices higher with strong earnings announcements from Alphabet (NASDAQ: GOOGL) and Advanced Micro Devices (AMD). However, these stocks weren’t enough to keep the momentum going throughout the day. The Nasdaq finished the day 0.50% higher despite the majority of stocks on the Nasdaq Exchange declining.

The S&P 500 (SPX) was the top-performing benchmark index, rising 0.94%. Again, breadth was weak in this rally with the New York Stock Exchange (NYSE) also seeing decliners outpacing advancers on Wednesday.

After today’s close, Amazon (AMZN) is expected to have record revenue, so a miss or even too small of a hit, may result in a beat down. Ford (F) is also expected to announce, which should provide insights into the company’s electric vehicle sales.

Items of Interest

The European Central Bank (ECB) met this morning and decided to leave rates unchanged, but they did decide to end its bond purchases by the end of March, like the United States. Europe’s January inflation report was higher than expected, which put pressure on the ECB. 

In fact, the Bank of England (BoE) did raise its lowest interest rate this morning by 0.25% for the second time in a row. Their lowest rate is now 0.5%. The BoE is trying to curb inflation. England doesn’t have the tech presence that the United States has and is more driven by the financial sector, so the rising rates have helped the FTSE 100 outperform the S&P 500 (SPX). However, the FTSE did close 0.23% lower this morning. 

With the ECB and BoE looking more hawkish, the 10-year Treasury Yield (TNX) rose 2.15% in sympathy despite crude oil, gold, and the U.S. dollar all trading lower.

Technocrats

The stocks formerly known as the FAANGs (Facebook, Apple, Amazon, Netflix, Google) may not be able to pull the tech sector back into its once prominent leadership role, but some of them are still holding strong. Apple AAPL announced better-than-expected earnings last week and reported very few supply chain issues, even with the microchip shortage that so many other companies have struggled with. Apple’s prominent market position appears to garner some favoritism among suppliers.

The parent company of Google, Alphabet GOOGL, rallied more than 8% on Wednesday due to its positive earnings report. The company has basically regained any losses experienced during the recent pullback because it jumped back up near its 2021 highs.

However, other FAANGs haven’t fared so well. We discussed the Meta Platforms FB earnings miss. FB was already down about 16% from its all-time high and could add another 18% to those losses if extended-hours trading carries over into today’s action. If Meta is already having issues with controlling costs, it could get tougher because the company is betting $10 billion on the metaverse for its future.

So far, Meta doesn’t appear to be as bad off as its internet companion, Netflix NFLX. NFLX was already down 27% before its January 20 earnings announcement. After the disappointing earnings outlook, the stock fell another 21%. Recently, Netflix has been able to trim some of its losses, but the stock is down nearly 38% from its all-time highs.

Amazon AMZN isn’t as bad off as Netflix despite underperforming the S&P 500 (SPX) all year. AMZN is down about 20% from its all-time highs and is scheduled to report earnings after the close today.

While the market may be looking for new leadership to help pull stocks out of their funk, Apple and Alphabet don’t seem to be ready to relinquish their positions any time soon. Investors will have to wait and see what Amazon does. And while Microsoft (NASDAQ: MSFT) didn’t fit into a catchy FAANG acronym, it has shared in the success of the FAANG stocks and as well as the massive market capitalization of the group. MSFT sold off on its earnings announcement but has bounced back more than 8% and is just 8% off its all-time high. 

Additionally, these companies appear to be turning on each other. A letter from Apple to the U.S. Congress appears to be calling out Meta over consumer privacy. Legislation directed at app stores like Apple’s and Google’s is meant to force these tech companies to allow users to download apps using other stores and payment systems. However, Apple is concerned that allowing these alternatives would put user data and information at risk. According to Apple, consumers have become increasingly concerned over privacy protections, and some platforms have been less cautious about privacy. If Apple and Google are able keep their payment systems intact, this could hurt Meta and Amazon. Meta CEO Mark Zuckerberg has testified before Congress several times over issues with user privacy. 

A Step Back: The ADP Payrolls report saw companies cutting jobs on net for the first time since December 2020. Payrolls shrunk by 301,000 jobs. The Omicron variant appeared to hurt the numbers. Workers on unpaid sick leave can skew the report because they appear as job losses. Travel and leisure were hit the hardest and accounted for nearly half of all payroll losses, but every sector was lower.  

Escalation: The United States is sending or repositioning 3,000 additional troops to help support Ukraine in its standoff with Russia. The news didn’t seem to effect oil prices much because crude oil closed 0.20% lower but natural gas futures rallied 13.91% on the day. Natural gas was likely reacting to a cold snap coming through the United States that caused pipelines in Oklahoma and Texas to freeze. However, if tensions continue to rise in eastern Europe, petroleum supplies could experience disruptions.

TD Ameritrade® commentary for educational purposes only. Member SIPC.

Image sourced from Unsplash

This post contains sponsored advertising content. This content is for informational purposes only and not intended to be investing advice.