Market Sells Big Tech's Blowout Earnings
The major averages slipped on Friday as investors pored over a flurry of earnings results and a robust profit beat from e-commerce giant Amazon.
The S&P 500 fell 0.7% to 4,181.17, while the Dow Jones Industrial Average shed 185.51 points to close at 33,874.85. The Nasdaq Composite dropped 0.9% to 13,962.68.
Despite Friday’s weakness in equities, the S&P 500 notched its third straight month of gains in April, adding more than 5% to the index as investors bet on a big economic and profit recovery from the pandemic. The S&P 500 is now up 11% for the year. The benchmark closed at record levels on Thursday on the heels of blowout earnings results from Apple and Facebook.
The Dow rose about 2.7% this month, while the Nasdaq Composite gained 5.4% in April.
Amazon, the last of Wall Street’s mega-cap tech companies to publish results, reported a record first-quarter profit. The Seattle-based firm said profits more than tripled to $8.1 billion and January-to-March sales soared 44% to $108 billion. The results blew past Wall Street’s expectations with the company earning $15.79 per share vs. the consensus estimate of $9.54.
Amazon’s results showed demand remained strong for its massive online retail business even as the economy started to open up some. Still, Amazon shares, up 40% in 12 months, closed in the red on Friday.
Twitter, meanwhile, moved in the opposite direction on user growth results and second-quarter revenue guidance that fell short of analysts’ forecasts. The social media platform said monetizable daily active users totaled 199 million during the three months ended March 31 and reported per-share earnings of 16 cents. Twitter plunged 14%.
Apple was coming under some slight pressure in the premarket after the European Union said the company’s App Store was breaching its competition rules. The shares were down 1.4%.
Exxon Mobil and Chevron were both trading lower after reporting before the bell. Chevron shares fell after quarterly EPS failed to exceed expectations.
More strong economic data was released on Friday, continuing a trend that’s lifted stocks all month. March spending jumped a better-than-expected 4.2%, while personal incomes surged by a massive 21.1% amid more fiscal stimulus.
The PCE price index for March increased 0.5% month-over-month and 2.3% on a year-over-year basis. The core PCE, excluding food and energy, rose 0.4% for March and 1.8% year-over-year. The PCE inflation metric is watched closely by the Federal Reserve and Chairman Jerome Powell warned earlier in the week it may show a transitory increase in prices.
The inflation numbers apparently weren’t as high as feared, as the 10-year yield remained flat after the numbers were released.
Kevin Stankiewicz of CNBC also reports Leon Cooperman sees stock market lower a year from now due to tax, rate, inflation pressures:
Billionaire investor Leon Cooperman told CNBC on Friday he expects the stock market will be lower than current levels one year from now.
Cooperman’s comments came one day after the S&P 500 notched yet another record close in 2021, finishing Thursday’s session at 4,211.47. The broad equity index has risen roughly 12% year to date and about 43% in the past 12 months.
“Let’s face it. The market is facing the fact that taxes are going up, interest rates are going up, and inflation is going up. And we have a reasonably richly appraised market. So cyclically I’m engaged. But I got an eye on the exit,” Cooperman said in an interview on “Squawk Box.”
“I suspect the market will be lower a year from today. But I don’t have to make that guess now. This is not going to end well,” the chairman of the Omega Family Office added. “But nobody, myself included knows when this is going to end. We just watch the things that would normally indicate an end.”
Cooperman said he considers himself to be “a fully invested bear,” while acknowledging the market has lately “done better than I would’ve thought.”
In an attempt to explain his positioning, Cooperman said, “Bear markets don’t materialize out of immaculate conception. They come about for certain fundamental reasons,” such an impending recession, “a hostile Fed” and “speculative valuation.”
“The market has been very self-corrective in the sense that the FAANG stocks are not expensive, but the aspiring FAANG stocks are very expensive and they’ve been corrected in a serious way,” he said. “The whole slowdown in the SPAC area is self-correcting,” Cooperman added, saying he doesn’t see the conditions currently that would lead to a significant market decline in the near term.
At the same time, Cooperman stressed that the pace of gains the market has seen after bottoming out in March 2020 following a coronavirus-driven plunge cannot continue forever.
“However, however — this is the big however — I think we should recognize we’re pulling demand forward and that the longer-term outlook is not particularly favorable, in my view,” he said.
Cooperman said his forecast on inflation is different from Federal Reserve Chairman Jerome Powell’s view. The top U.S. central banker has repeatedly said he thinks inflationary pressures will be “transitory” as the economy recovers from the Covid pandemic, while stressing that Fed expects to keep monetary policy accommodative for the foreseeable future.
“I think that Mr. Powell will be surprised by inflation. It’s not going to be as quiescent and transitory as he thinks. I think the Fed will be forced to say something before the end of 2022,” Cooperman said.
It was a big week for earnings as all the big tech companies reported and we also had a Fed meeting where Federal Reserve Chairman Jerome Powell said he does see some froth in “equity markets” and other places, but sought to attribute the conditions to factors beyond the central bank’s accommodative policy:
“Some of the asset prices are high. You are seeing things in the capital markets that are a bit frothy. That’s a fact. I won’t say it has nothing to do with monetary policy, but it also tremendous amount to do with vaccination and reopening of the economy,” Powell said during a news conference Wednesday.
“That’s really what has been moving markets a lot in the past few months, this turn away from what was a pretty dark winter to now a much faster vaccination process and a faster reopening, so that’s part of what is going on,” Powell continued.
While Powell didn't hint at tapering, on Friday, Dallas Federal Reserve Bank President Robert Kaplan called for beginning the conversation about reducing central bank support for the economy, warning of imbalances in financial markets and arguing the economy is healing faster than expected:
"We are now at a point where I'm observing excesses and imbalances in financial markets," Kaplan told the Montgomery Area Chamber of Commerce in a virtual appearance in front of a live audience, pointing to "historically" elevated stock prices, tight credit spreads, and surging house prices.
"I do think, at the earliest opportunity, I think it would be appropriate for us to start talking about adjusting those purchases," referring to the Fed's $120 billion in monthly bond buys that, along with near-zero interest rates, are aimed at keeping financial conditions super-easy and bolstering the recovery.
Fed Chair Jerome Powell earlier this week reiterated his view that it is too early to even talk about potentially tapering the Fed's pace of bond buying, saying the economy, though growing fast, is a "long way" from the Fed's goals of full employment and 2% inflation, and still needs the central bank's all-out support
Kaplan on Friday staked out a different view. He reiterated his expectation that the Fed will need to start raising interest rates next year, more than a year earlier than most of his Fed colleagues anticipate.
The Fed has promised to keep up its current pace of bond buying until the economy makes "further substantial progress" on its two goals.
Kaplan said Friday he now expects to reach the Fed's hurdle for beginning to reduce bond buys sooner than he had thought even just a few months ago. There is "upside" risk to his own forecast of 6.5% U.S. GDP growth this year, he said, also predicting unemployment, now at 6%, will fall to 4% by year's end.
The U.S. government reported Thursday that the economy grew at an annualized 6.4% pace in the first quarter; it will provide a readout for April's unemployment rate next Friday.
On inflation, Kaplan, like Powell and other Fed policymakers, said he expects inflation to surge in coming months simply in comparison to last year's very weak readings amid nationwide lockdowns. He predicted readings of 2.75% or more. Some of that pop will recede in the fourth quarter, he said, but he did not characterize inflation's rise as "transitory" as Powell has done.
"Some of these base effects will go away, but that's not to say that there aren't still strains," he said, pointing to an expected surge in consumer spending, supply shortages, rising materials costs, labor shortages, and fiscal spending.
I'm not sure if the Federal Reserve is really interested in tapering or just testing the market, but the market didn't react well today.
Then again, a lot of the earnings news was sold, even on companies like Amazon, Facebook and Google that "smashed expectations" (Alphabet and Facebook shares had a strong week and held most of their gains).
Why? Because these stocks ran up since the end of March when I suspect elite hedge funds were snapping them up after a paltry quarter knowing full well Big Tech earnings were going to be stellar.
But the reaction to earnings varied. For example, Microsoft,Twitter and Ebay sold off after their earnings while Amazon didn't hold its gains today after surging in after hour trading yesterday.
You can tell big investors are worried and as I explained last week, with earnings season ending and investor anxiety running high for a lot of reasons (taxes, high valuations, margin debt, Archegos, etc), we might be in for a sell in May and go away scenario.
I'm not sure. Quant funds are still long risk and long risky stocks and you have this ongoing speculative nonsense fueled by reddit/ WallSteetBets which I am convinced is a front for hedge funds that are pumping and dumping a handful of meme stocks.
This week it was Microvision (MVIS) which was pumped all the way up to $28 a share on massive volume before falling back down to earth on Friday after earnings proved it's all hype:
But amazingly, these
day trader YOLOers hedge funds just keep rotating from one speculative stock to another every other day and they easily pump and dump these stocks with impunity (where is the SEC??):
If you don't believe me, just check out the action on Ocugen (OCGN) which was up 6% on massive volume today after being pumped to $19 a share last week before being dumped:
Unbelievably, this speculative biotech which has US rights to some Indian vaccine called Covaxin was the number one traded stock today by a landslide.
And there are plenty of others that hedge funds pump and dump with impunity like Vaxart (VXRT) which was up huge this week:
And shares of Brooklyn Immuno Therapeutics (BTX) rocketed up 45% today and another 55% after the close on a licensing agreement it struck for an mRNA technology platform to develop genetically edited cells to treat multiple cancers, blood and other disorders (this is another WSB pump and dump recommendation/ scam):
I can give you a laundry list of speculative nonsense moving up and down on massive volume every day, my point is speculation still reigns in these frothy markets because short sellers were clipped as the Fed and other central banks backstop insanity!
You run more of a risk getting blood clots shorting these crazy speculative stocks than from the AstraZeneca or J&J vaccine!
When will this nonsense stop? Nobody knows but for now hedge funds are having a ball pumping and dumping stocks and there are plenty of people out there who take their investment advice from Reddit and other social media/ stock sites.
Scary but true and this "phenomena" seems like it's here to stay, until the next crash which will wipe all these
investors day traders out.
All I know is investors and traders better get used to a very choppy market ahead:
The 2009/'10 bull peaked right about now, while the 1982/'83 bull was quite choppy going forward.— Ryan Detrick, CMT (@RyanDetrick) April 29, 2021
After an 87% rally, something to think about here and now. pic.twitter.com/CBuj01OGIq
Below, CNBC's "Halftime Report" team discusses Big Tech earnings and outlook for stock performance.
Second, "the market is facing the fact that taxes are going up, interest rates are going up, and inflation is going up," billionaire investor Lee Cooperman told CNBC's "Squawk Box" Friday. "So cyclically I'm engaged. But I got an eye on the exit. And I suspect the market will be lower a year from today."
Lastly, Jeff Gundlach, CEO of DoubleLine, joins BNN Bloomberg's Amber Kanwar to provide his outlook. He's concerned about the U.S. Federal Reserve's conviction on inflation, thinks U.S. stocks are very overvalued on almost all metrics, believes US President Joe Biden's proposed capital gains tax hike is a negative, sees the US corporate tax rate rising to 25 per cent, and feels that Canadian housing affordability issues can create societal tension (also watch it here).
I don't agree with Gundlach's bearish views on the greenback (other countries are in the same boat and much worse) but he raises a lot of interesting points, so take the time to listen to him, especially toward the end when he talks about deteriorating housing affordability and how money printing is only exacerbating social tensions.
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