Head of Equity Strategy
Summary: Meta blasts Q1 revenue and earnings estimates on top of guiding strong Q2 revenue figures significantly exceeding estimates suggesting the online advertising industry has turned a corner reflecting a more upbeat outlook from companies in Q2. From a macro perspective this is very positive and suggests that a recession is not imminent just yet. Caterpillar revenue and earnings in Q1 are strong and above consensus estimates driven by a much stronger pricing effect than expected while confirming the 2023 outlook. Amazon is the next major earnings release in focus and will be reporting after the US market close in which investors will be hoping for its operating income extending the positive gains showed in Q4.
Caterpillar beats estimates on surprise demand
If there is a company that should begin feeling the headwinds of higher interest rates it should be Caterpillar, the world’s largest manufacturer of machinery and construction equipment, but the company just reported better than expected Q1 results. Revenue came in at $15.9bn vs est. $15.3bn an increase of 17% y/y driven by strong price realization but also higher sales volume. Higher prices also lifts the operating income to $3.3bn vs est. $2.4bn underpinning that Caterpillar has the market power to pass on inflation with customers accepting it without destroying demand. The forward-looking statements from Caterpillar suggests that the economy is humming along.
Meta Q1 results confirm advertising has turned a corner
Meta has been the big winner among the mega caps so far in the Q1 earnings season with last night’s results smashing estimates. Q1 advertising revenue was $28.1bn vs est. $26.8bn and the Q2 total revenue guidance of $29.5-32bn is higher than consensus at $29.5bn suggesting advertising is beginning to surprise to the upside like we saw the other day from Alphabet’s Q1 results. From a macro perspective this suggests that the economy could begin accelerating over the next 3-6 months. The only disappointing thing in the result was that the headcount is only down 1% y/y and that it expects the Reality Labs segment’s operating loss to increase indicating that the CEO and founder Mark Zuckerberg is not willing to sacrifice his bet on the metaverse just yet. Meta shares are up 12% in pre-market trading.
Can Amazon get its mojo back?
The big earnings focus tonight after the US market close is Amazon which is expected to see just 7% y/y revenue growth which implies slightly or no volume growth at the largest e-commerce retailer in the developed world. Amazon misread the signals during the pandemic which led to massive overinvestment which has haunted the company for many quarters and recent cost-cutting exercises should extend the rise in operating income which happened in the last quarter (see chart).
Given the low expectations for Amazon it should be manageable for the company to beat expectations, but despite many years of abrupt success it is no so given any longer. Competition has increased dramatically in e-commerce and cloud infrastructure, and Amazon’s international e-commerce operations remain a negative for the outlook.
A new fragmented world order can render some of today's infrastructure obselete, but it also calls for massive new investments across the globe, which requires a new set of strategic and tactical investment strategies.
Steen Jakobsen,
Chief Investment Officer
As globalisation turns to fragmentation, China seems set on playing a role in the global economy, while simultaneously working towards proofing its own economic situation from external shocks and crises.
Redmond Wong,
Market Strategist
The recent bank runs and ensuing challenges are reminicent of something we've seen before. Will it end like the S&L crises of 1986 and 1995?
Chris Dembik,
Head of Macroeconomic Research
Equity markets need to recalibrate to another - fragmented - global world. What's your view on equities in this market - are they going up or down?
Peter Garnry,
Head of Equity Strategy
With every development comes new opportunites, some of which could be in India. Have you considered the country as a part of your diversification strategy?
Charu Chanana,
Market Strategist
A collar is an option strategy that allows some protection while maintaining some upside potential. What investment would you like to use a collar strategy for?
Hans Oudshoorn,
Trainer Academy
There are arguments to be made for many commodities to have upside. Which are you paying the most attention to this quarter?
Ole S. Hansen,
Head of Commodity Strategy
In a very challenging macro environment, which currencies do you think will come out on top?
John J. Hardy,
Head of FX Strategy
