Head of Saxo Strats
Summary: This week is the busiest during the earnings season with around 500 companies reporting earnings amid a major focus on tech. But after Alphabet and Amazon failed to deliver, can Facebook and Apple reboot sentiment?
This week is the busiest during the Q3 earnings season with around 500 companies reporting earnings among the 2,000 we track globally. The US earnings season is halfway through with positive upside surprises to both revenue and earnings. However, last week’s disappointing guidance from Amazon and Alphabet caused nervousness among investors.
Are US technology companies finally falling down to earth in terms of growth? One thing is certain, US technology companies are still growing faster than the average and profitability is better. This week Apple reports FY18 Q4 numbers (ending September) and expectations are high. If Apple fails to deliver we might see further repricing in US technology stocks. Meanwhile in Europe operating income (EBITDA) growth is flat y/y and revenue is barely above zero growth with only 0.6% y/y growth.
This week’s earnings most important earnings for markets are Facebook, Apple and Alibaba. Below is a short description of what to look for in those earnings releases.
Facebook
The world’s largest social media company has had a volatile year with the Cambridge Analytic scandal and recent security breach. Q3 EPS estimates have fallen 11% the past six months to $1.88 which translates into a low 3% y/y earnings growth which is the lowest since 2015. However, revenue growth is still expected at high 34% y/y as the company continues to steal market share in online and mobile advertising. Facebook’s issues as 2019 approaches are lower trust in the brand, less engagement on the Facebook platform and higher operating costs associated with security. Last quarter the CEO Mark Zuckerberg shocked the market with a clear statement that profit margins would come down following the Cambridge Analytica scandal. The company cost guidance is the most important key metric to follow in the Q3 earnings release. Facebook reports Q3 earnings on Tuesday after the market close.
Apple
The iconic consumer electronics brand has defied sceptics as the company has reignited growth. Consensus EPS estimates are looking for EPS $2.77 up 34% y/y and revenue of $61.4bn up 17% y/y as consumers continue to buy into the brand. Investors will focus on any news on recent new product releases that are going into markets late October and is expected to fuel sales into December’s holiday season. Apple’s latest product upgrades have pushed on the average selling price which has fuelled profit growth. So far the strategy has worked but we expect growth numbers to mature in the iPhone segment. Increasingly the Services and Other Products segments will be important profit engines for the company. Apple reports FY18 Q4 earnings on Thursday after the market close.
Alibaba
With Chinese equities in a bear market and valuation on Chinese technology companies under pressure there will be intense focus on Alibaba set to report earnings on Friday before the US market open. Analysts have grown increasingly negative on the company’s Q3 earnings with estimates now looking for EPS to decline 12% y/y but with still healthy revenue growth of 57% y/y. Our take is that the market is likely too optimistic on revenue growth given weakness in the Chinese economy. Our view is that Alibaba’s size makes it vulnerable to current developments in China.
Overall, Apple has the potential to support sentiment while both Facebook and Alibaba could disappoint as both face increasing headwinds.
The table below shows the most important earnings releases this week.
2024: The wasted year
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
