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Nasdaq Breaks 3-Day Winning Streak

This podcast was originally published on https://www.bfm.my/podcast/morning-run/market-watch/nasdaq-tech-stocks-sell-off-meta-alphabet-apple-amazon

Investors were not impressed by results from Meta and Alphabet leading to a sell-off in tech stocks on Wall Street. We speak to Tony Nash, CEO of Complete Intelligence, to find out how results from Apple and Amazon set to come out soon might impact overall market sentiment.

Transcript

BFM

This is a podcast from BFM 89.9, The Business Station.

BFM

BFM 89 Nine. Good morning. You’re listening to the Morning Run. I’m Shazana Mokhtar with Keith Kam. It’s 7:06am on Thursday, the 27 October a rather overcast Thursday morning. For now, perhaps we’ll see the sun come out a little bit later. As always, we’re kickstarting the morning with a look at how global markets closed overnight.

BFM

It was a bit of a mixed day for what generally red though the Dow Jones on Wall Street, the Dow Jones ended marginally higher, that’s 0.01% barely changed. S&P 500 was down 0.7%. But the action was on the Nasdaq that closed 2% lower because of disappointing results from Meta and Alphabet. We’ve just got to wait for the Apple and Amazon results that will be out tonight US time. So we’ll be discussing that tomorrow. Early in the day, Asian markets were generally green. The Nikkei was up 0.7%, the Hang Seng was up 1%. The Shanghai Composite and Singapore’s STI, they were both 0.8% higher. And back home the FBM KLCI closed 0.7% up.

BFM

For some thoughts on what’s moving international markets, we have on the line with us Tony Nash, CEO of Complete Intelligence. Good morning, Tony, thanks for joining us today. Now, notwithstanding overnight results, global equities led by US stocks have extended gains over the last week, avoid by the expectations that peak inflation has been reached. What do you think? Are they being too sanguine about inflationary pressures?

TN

I don’t necessarily think they’re being too sanguine. There are cases to be made that housing prices and wage growth have turned the corner. Goods price inflation has likely peaked, but there doesn’t necessarily mean that we’ll see prices decline. Regardless of what’s happening in the inflation environment. The Fed is going to raise rates in November, likely by 75 basis points and again in December. So the Fed typically lags inflation on both sides on the way up and on the way down and so they’re likely going to over tighten. Markets have largely factored in a 75 and 50 basis point hike over the next two months. So are they sanguine? I don’t know. I think if we start to see inflation really take a downward turn, then it could be a very good thing for all of us.

BFM

But Tony, the 75 basis point expected hike by the Feds comes at a time when a lot of analysts are also expecting recession to hit the US sometime sometime next year. Would there be some reassessment as we go along?

TN

Well, we’ve already had kind of negative economic growth for half a year, so we do need to see jobs come down. And with the tech earnings coming out, as you guys mentioned in the news segment, we expect tech companies to announce some pretty major layoffs before the end of the year.

BFM

Let’s get into that a little bit, Tony, in terms of tech results, I mean we did see Meta overnight, we’ve seen how Microsoft also came in below market expectations. What do you think this tells us about the direction of the tech sector moving forward, especially with this environment of rising interest rates and a looming global recession?

TN

Yeah, well, tech companies have overhired. They were hiring based on valuation, not necessarily based on revenue. And so now that their valuations have come down, they have excess staff and they need to clear the decks. And the productivity within the technology sector, although it sounds a little weird, the productivity is pretty low because they’ve had too many people. So as these companies come out and give pretty sad earnings reports, there’s going to be pushback from investors that they need to lay people off, and that will come out in the next couple of months. So we’ll see some of that. Now, if you compare that to, say, companies like Coca Cola and GM who beat the street, those companies have been able to pass on cost rises to their customers, so they’ve factored in cost rises to their price. Now, many of those companies saw volumes decline, but price rises more than made up for the volume decline. So they’ve beat expectations by raising price, in many cases by double digits.

BFM

Tony, we’re expecting Amazon and Apple results to come out tonight, and what we’ve seen from the previous results have sort of, well, dampened market sentiment, if you may, what are your expectations going forward?

TN

Yeah, I don’t think they’re going to be stellar results. I think Amazon had this, at least in the states, they had this kind of second prime day a couple of days ago to goose sales revenues for the quarter, which tells me that things are not stellar at Amazon, and so there are signs that things aren’t working out. The new iPhone is kind of a yarn for a lot of people, so it’s not necessarily pushing out. And so I think the expectations are for pretty mediocre results. So if they report in excess of expectations, then tomorrow will be a fantastic day in markets. But I don’t think that’s necessarily likely at this point.

BFM

All right, something we’re going to be keeping an eye on. Another thing to keep an eye on is the slew of indicators that are going to be coming out. We’ve got US GDP, durable goods, and initial jobless claims numbers. Which indicator are you paying the most attention to in terms of being a gauge of how well the economy is going?

TN

Yeah, one of the things that I always tell people to be careful of with some of these macroeconomic numbers is things like GDP. What’s being announced is what’s called a preliminary release. So they kind of have a sketch of what’s happening in the economy, but it’s not detailed. So when these GDP announcements come out and it’s the first release, it’s not really accurate. And those things can change by 50% or more in some cases. So GDP is not really something I look to. It’s kind of a headline, but it doesn’t really mean a whole lot.

TN

Durable goods is interesting because that tells me that people are investing in things, buying things that last a long time so that they can deliver new services or new products in, say, three to six months time. So that would tell me people are looking forward. So if durable goods is a bad number, then it tells me people are really just trying to take care of today and not investing in the future.

TN

Jobless claims. I don’t know. Sometimes it’s meaningful, sometimes it’s not. I think the sentiment around jobless claims is overhyped. The Fed is definitely watching jobless claims because they want to see wages and jobs come down. So with jobless claims, it’s one of those good news and bad news types of things. So we’re kind of hoping for a poor jobless claims so that the Fed can kind of tick off the box and say, mission accomplished.

BFM

Tony I just want to pick your brains on this. We’ve seen three straight days of market gains on Wall Street and this morning, or rather last night for you or today for you. We’ve just seen a reversal of that. Is this an indication that maybe fortunes might be changing going forward?

TN

I think it’s a good question, and I think it’s hope that the Fed is changing course. And I think regardless of what comes out, say, this month, and I think probably next month, I don’t think the Fed is going to change course. They were caught flat footed. They said that inflation was transitory, they messed up, they’re embarrassed, and they’re going to make people feel it. And people are going to lose jobs and homes and all sorts of things because regional Fed governors don’t want to be embarrassed again. So I think at least over the next two months, they’re probably not going to change course. They’re going to continue to tighten. I don’t think there’s been a dramatic change in everything. I think this is a little bit of hope, and I think it is some earnings that have been reported that are better than expected. But I think in general, people are being very cautious about trades they make.

BFM

Tony let’s end the conversation with a look at oil prices. They are taking a breather on news that US stock bells have risen. How will that translate in terms of energy prices as the Northern Hemisphere moves into winter?

TN

Yeah, the SPR, the Strategic Petroleum Reserve release, it’s put a lot of volume in the market in recent months. And of course, that’s lowered crude prices and it’s lowered the price of refined products. So after the election, and it’s no secret we expect the SPR releases to decline dramatically. And we’ve talked for a few months about how we expect crude prices to kind of spike towards the end of the year. And that would be spikes in crude prices and downstream products like, say, petrol. So we do expect that to happen in the North American market, kind of in Q4 and through Q1 out of the effects of that SPR release wear off.

BFM

And meanwhile, OPEC has also forecasted that China’s oil demand will decline by 60,000 barrels per day. Is that something that you see could cap further spikes in prices?

TN

It could. I mean, 60,000 barrels isn’t a lot, but it could. I think if China were simply to end COVID Zero, it would really drive consumption of crude. So OPEC must expect further dampening of the economy in China, and that’s no surprise. I mean, China is really having a hard time right now, and whether or not they can come back in ’23 is questionable, so it’s no surprise. But 60,000 barrels a day really isn’t a lot, and I don’t think it would affect prices dramatically.

BFM

Tony, thanks as always, for speaking with us this morning. That was Tony Nash, CEO of Complete Intelligence, giving us his take on some of the trends that he sees moving markets in the days and weeks ahead.

BFM

Yeah, so we did see Meta shares plummet 17% on week fourth quarter forecast. And earning miss. It basically came up well short of Wall Street’s expectations. Earnings per shares earnings per share was $1.64 versus a  $1.89, which was what was expected. Revenue was at $27.7 billion. Daily active users did meet expectations at 1.98 billion users, and the monthly active users came in at 2.96 billion versus 2.94 billion.

BFM

I mean, Meta is contending with a broad slowdown in online ad spending, challenges from Apple’s iOS privacy update and increased competition from other players like TikTok. It’s getting more expensive to run the company as Meta’s costs and expenses rose 19% year over year to $22.1 billion. And that’s something that Tony alluded to earlier, the fact that they’re likely going to see more layoffs moving forward. Tech companies have just been on a hiring spree that they cannot afford at this point. And I bet the WhatsApp outage the other day didn’t help a Meta’s fortunes either, at least in terms of its reputation and image. It could see a lot of people try to migrate elsewhere from using WhatsApp as their main communication source to another platform that is more stable, perhaps. 

BFM

I must say we could wait until to see what happens towards the end of the year. Well, November actually, just next month when the midterm elections come, and we see if there’s any pick up in usage then.

BFM

That’s true. All right, it is 7:18 in the morning. We’re heading into some messages, and when we come back, we will be covering the top stories in the newspapers and portals this morning. Stay tuned. BFM 89.9. You’ve been listening to.

BFM

A podcast from BFM 89 Nine, the business station. For more stories of the same kind, download the VFM app.