Head of Equity Strategy
Summary: The CEO of JPMorgan Chase, Jamie Dimon, was positive on the US economy yesterday although also acknowledging that there are storm clouds at the horizon. Almost simultaneously, Snap published a worse than expected revision to its previous Q2 revenue guidance suggesting the online advertising industry is slowing down faster than expected. This is a worrying sign as advertising spending is a leading indicator on the economy and reflects business confidence.
Snap shares down 29% in pre-market on outlook cut
Jamie Dimon, CEO of JPMorgan Chase, put out yesterday a strong outlook for US credit and said the US economy was strong although there are storm clouds on the horizon, which could either disappear again or materialize into a recession. Financial markets have long signaled a deteriorating outlook through rapidly tightening financial conditions, but yesterday’s Chicago Fed National Activity Index (a broad-based measure of US economic activity) showed strong activity levels for April. The US economy is actually humming along at a pace much above the historical trend growth, which makes the recent drawdown in equities much more confusing, but that is because it is driven by financial conditions and not the economy.
Simultaneously with Dimon’s outlook another much more dim outlook was published by Snap, the iconic social media company that together with TikTok have eaten into Facebook’s lunch, cutting its Q2 revenue outlook. Just a month ago, Snap said that it expected Q2 revenue to grow 20-25% y/y which was lower than the 28% consensus. Investors got nervous about the top line, but even more nervous over the sudden reversal in profitability. Snap shares have tumbled since the Q1 earnings release on 21 April. Yesterday’s outlook cut was terrible as Snap said it sees Q2 revenue and adjusted EBITDA below the low end of its previous guidance. The chart below shows the current consensus trajectory for revenue growth and the potential new path based on this outlook cut. Naturally, the stock is being punished in pre-market plunging 29%. Despite these apparent pressures in its advertising business Snap’s CEO Spiegel said that the company is planning to slow hiring instead of focusing on profitability by freezing hiring plans; the lack of determination to bolster profitability is a worrying sign for shareholders.
Snap’s deteriorating outlook might be an omen of Dimon’s storm clouds as a cutback in advertising might be a sign that businesses are seeing a material slowdown relative to recent expectations. It could also be that Snap is the advertising platform with the lowest return on investment so businesses are cutting surplus advertising from Snap’s platform first. In any case, we expect downward pressure today on other social media stocks such as Alphabet (Google), Meta (Facebook), and Pinterest, and also the wider technology sector.
Figures mentioned in this equity note:
The market is trying to get back to the pre-Covid and pre-war times, but that model is broken. A new dawn is here and the financial world needs to adapt.
Steen Jakobsen,
Chief Investment Officer
A political switch in China towards less tough control of its people and companies may kick things back into gear.
Redmond Wong,
Market Strategist
While the economic situation in Europe may not be as bad as feared, there's still a plethora of things to fix.
Chris Dembik,
Head of Macroeconomic Research
As the world turns increasingly bipolar, equity markets face harsh times as they transition into the new reality.
Peter Garnry,
Head of Equity Strategy
New alliances and collaborations outside of China may lead to prosperous times in Asia.
Charu Chanana,
Market Strategist
For years, it was thought that the balanced portfolio was a thing of the past. But recent developments may have changed that.
Peter Siks,
Investment Coach
Following a dramatic and volatile 2022 with good returns, a lot of this year's commodity performance may be driven by Chinese politics.
Ole S. Hansen,
Head of Commodity Strategy
2023 could be a tough year for currencies but EUR and JPY may have some upside.
John J. Hardy,
Head of FX Strategy
The commodity-heavy Australian market may have a good start to 2023, as the Chinese focus on growth signals demand for Aussie resources.
Jessica Amir,
Market Strategist
From a near-perfect environment for speculative assets before 2022 to the opposite, crypto faces fundamental challenges.
Mads Eberhardt,
Cryptocurrency Analyst
Disclaimer
The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.
Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-gb/legal/disclaimer/saxo-disclaimer)
