Monday, November 29, 2021

Is Big Tech signaling a setback?

We have had a lot of earnings reports this week, including some of the biggest names out there.

That is, all of FAANG (Facebook, Amazon, Apple, Netflix and Google) published their numbers.

And here’s one thing I couldn’t help but notice … the reports from all the companies mentioned aren’t bad, but they all seem to have one thing in common.

And the price reaction has not been very good, to say the least.

Can the slow post-report performance tell us something more important about the state of the market?

Let’s start with the big boy, which, of course, is Amazon (AMZN).

These are the numbers the company published last night:

  • EPS $ 15.12 vs. the consensus of $ 12.2
  • Income $ 113.1B vs consensus of $ 115.4B
  • Third quarter revenue guidance of $ 106 billion to $ 112 billion vs. consensus of $ 118.72

The last part is obviously not very good: Stocks like AMZN have set the bar for growth very high.

So any unexpected slowdown can turn catastrophic, which is pretty much what happened here:

Well, AMZN got it wrong, so it’s being slaughtered. Good for them.

Let’s now take a look at Netflix (NFLX) – a Wall Street favorite.

The company reported earnings on July 20, 2021:

  • EPS $ 2.97 vs. the consensus of $ 3.15
  • Income $ 7.34B vs consensus of $ 7.32B
  • Subscribers up to 3.5 million vs. 5 million

This is how it developed:

It’s clearly not as bad as AMZN, but it goes without saying that the market hasn’t been ecstatic so far. The stock remains cleanly below pre-earnings levels, seemingly ready to slide further.

Then, Facebook (full board), and this is where things get really interesting. FB reported:

  • EPS $ 3.61 vs consensus of $ 3.01
  • Income $ 29.08B vs consensus of $ 27.89B

On the surface, everything looks perfect, but the market doesn’t have it:

And the reason is simple, Facebook also said it expects growth “significantly slow down sequentially as we go through periods of ever stronger growth“.

I won’t post Google and Apple charts here, but neither has done well despite the seemingly good numbers.

And here’s the big question, the elephant in the room: do these FAANG name drops signal bigger problems for the market ahead?

I don’t want to call pessimism here, but let’s look at the facts: The biggest and strongest stocks in the market, leading the way before, after and even during the pandemic, are suddenly signaling declines in business.

And yes, we are in a market where SPY can barely submerge and all eyes are on the economic recovery.

Doesn’t it seem problematic that market prices have such high expectations, yet the strongest companies fail to deliver?

Now, I’m never the one who calls out the best, but look, flyers don’t look very good.

If we don’t see a reversal to the upside in the next few days, I think the downside could be the way to move for FAANG stocks.

And they can also take the market with them. SPY is sitting on the highs once again, but again failing to have sustained momentum.

If SPY can’t stay above $ 440, I really wouldn’t be surprised to see a retest of $ 420 from 2 weeks ago and then a move lower after that.

I’m not telling you to get totally bearish, but the underperformance of stocks and the bleak prospects of the world’s major corporations are not something to go unnoticed.

Is Big Tech signaling a setback?

Tags: Netflix Stock
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