With the Nasdaq suffering its worst January performance since 2008, and riding the largest intra-day swings since the early 2000s bubble, investors are looking for a valuation lifeline next week amid a series of big tech earnings that could make or break forecasts for the coming year.
Apple (AAPL) - Get Apple Inc. Report, Microsoft (MSFT) - Get Microsoft Corporation Report, Tesla (TSLA) - Get Tesla Inc Report, Intel (INTC) - Get Intel Corporation Report and IBM (IBM) - Get International Business Machines Corporation Report will post December quarter updates, starting after the close of trading Monday, with bellwether value names such as General Electric (GE) - Get General Electric Company Report, Boeing (BA) - Get Boeing Company Report, Ford (F) - Get Ford Motor Company Report, Johnson & Johnson (JNJ) - Get Johnson & Johnson Report and Caterpillar (CAT) - Get Caterpillar Inc. Report highlighting the most active week of what is so far a disappointing earnings season.
Netflix (NFLX) - Get Netflix, Inc. Report lowered the bar in a big way late Thursday when it topped Street forecasts, but provided a notably weaker-than-expected forecast for near-term subscriber growth that it failed to properly explain to bemused analysts on its conference call.
The resultant confusion wiped more than $50 billion from the streaming group's market cap and sent it shares back to levels last seen prior to the Covid pandemic.
Peloton (PTON) - Get Peloton Interactive, Inc. Class A Report managed to put a tourniquet on repots that it's planning a major production halt, but its December quarter pre-announce -- and reference to 'significant corrective actions' -- only clawed back a small portion of the stock's 2.5 billion collapse.
Netflix and Peloton did manage, however, to unite investors in at least one sense: their gloomy demand forecasts have made asking if the long-predicted pullback in tech stocks has finally arrived suddenly fashionable.
Rising interest rates and slowing profit growth is a bad combination for stocks -- tech or otherwise -- and simmering geopolitical tensions, coupled with multi-year highs for commodity prices and a lingering global pandemic, don't exactly provide confidence.
The Fed is also champing at the bit to prove its inflation-fighting credentials -- and regain its broader credibility -- when it meets next week in Washington. Traders are forecasting at least three, and as many as five, rate hikes between now and the end of the year, and if the Fed sticks to its guns, the re-pricing of risk over the next few months will be comprehensive as consumer momentum evaporates.
In fact, assets that aren't supposed to have any connection to mainstream markets at all -- I'm taking about crypto here -- are already doing some back-of-the-envelope arithmetic: Bitcoin is down more than 40% from its mid-November peak and ready to breach the $38,000 mark in the coming days.
GameStop (GME) - Get GameStop Corp. Class A Report, the Reddit-fueled darling that defined last year's go-go enthusiasm (even as it continued to post consecutive quarterly losses) fell below the $100 mark Friday for the first time since March and potentially signaling the first of the retail investor capitulation.
So what kind of respite, if any, can earnings provide next week?
Apple has already told us that December quarter sales will be clipped by Covid-linked disruptions in its supply chain, while the good news from Tesla's record quarter can really only be improved if reports higher profit margins - a tall order when input costs are rising at a record pace in markets all over the world.
Collective S&P 500 profits are forecast to rise 23.1% for the fourth quarter, to $434.4 billion, before slowing to just 7.5% for the first three months of the year.
All this might explain the market's wretched week, the worst since October of 2020, and the re-rating of stock performance from analysts up and down Wall Street.
Still, Bank of America's weekly "Flow Show" report suggests the world's biggest fund mangers are unbowed: more than $52 billion has flowed into stocks funds so far this year -- a figure that matches last year's early January tally -- and equities still comprise more than 65% of private client holdings.
Janney Montgomery Scott's Michael Halloran notes that while S&P 500 returns normally fall 6% during the first three months of a rate-hike cycle, the weakness is usually short-lived: "as returns average +5% during the six months following the first hike," he said. "Moreover, valuation has stayed relatively stable with the S&P 500 P/E typically flat during the 12 months around the first hike."
If history is to hold, however, next week's earnings slate can't throw up too many surprises, so let's hope we get to next Friday without another Netflix.