4 High-Growth Tech Stocks Bounced Back After Earnings Results. Here’s What It Means For You Right Now.Aug 03, 2022
Last week was an important week for investors.
Federal Open Market Committee hiked the fed market rate by another 75 bps.
U.S. Bureau of Economic Analysis (BEA) released the USA’s GDP estimate of -0.9% for Q2 2022, making it two consecutive quarters of GDP decline.
Top companies in S&P 500 reported their results.
As I shared in my previous article, companies like Alphabet, Microsoft, Meta Platforms, Amazon, and Apple have the power to influence the S&P 500 because they carry big weightage in the index. Click here to understand the weightage.
With the exception of Meta Platforms, the rest of the companies bounced off after reporting their respective results.
(Chart 1. Price comparison of Top S&P500 companies. Source: Google Finance)
The stock price of Amazon.com rose on 29 July 2022, a day after it reported its quarter two results. All three segments of North America, International, and AWS slowed down.
(Source: Amazon.com Investor Relations)
For Microsoft, its revenue and operating profit grew by 12% and 8% respectively.
For Apple, its revenue grew by 2% and operating profit fell by 4%.
In an environment of economic uncertainty, you would agree that these are not great but decent results.
Why did their stock prices rise then?
The fear of an earnings recession was so prevalent that many investors’ expectations of these companies were lowered drastically. The simple fact of performing better than their worst expectations was enough to create a bounce. I can’t help but feel sorry about how certain news outlets are pushing pile after pile of bad news to manipulate investors.
In short, things are already priced in before last week.
The odds of this rally becoming a real market recovery (not a bear rally) is higher. S&P 500 did not make any new lows since 47 days ago.
Insights from Earnings Calls of Banks and Payment Gateways
To understand our economy better, it’s imperative for us to understand what CEOs of banks and payment gateways are seeing. They have a bird’s eye view of the economy by seeing how people are spending their money, bank balances, and defaults on payments.
Here are some key takeaways:
- “Nothing in the data that I see signals that the U.S. is on the cusp of recession. While a recession could indeed take place, it is highly unlikely to be as severe as others we have seen.” – Jane Fraser, Citigroup’s chief executive
- “We’ve looked a lot very carefully into our actual data. There is essentially no evidence of actual weakness.” – Jeremy Barnum, JPMorgan’s chief financial officer
- “Our small business portfolio continues to perform well in the aggregate in both delinquencies and losses. Leading indicators such as payment rates, deposit levels, utilization and revolving debt trends do not yet indicate signs of stress. Loan demand from our commercial customers remained strong with broad-based balance and commitment growth.” – Wells Fargo 2Q 2022
- “Within the consumer balances, I'd just like to point out that small business deposits of $177 billion grew 14% year-over-year, and that reflects continued reopening of small businesses across America and the consumer spending supporting their growth. The average balance of these accounts is more than $40,000.” – Bank of America Q2 2022
- “And the consumer, I feel like a broken record. The consumer right now is in great shape. So even if we go into a recession, they're entering that recession with less leverage, in far better shape than they've been - did in '08 and '09, and far better shape than they did even in 2020. And jobs are plentiful. Now of course, jobs may disappear. Things happen. But they're in very good shape. And obviously, when you have recessions, it affects consumer income and consumer credit. Our credit card portfolio is prime. I mean, it's exceptional.” – JP Morgan, 2Q 2022
- Now you're taking us really a long time back in 2008 and 2009. I think the first thing I would say is it's a very different scenario. A scenario that we're looking at externally, that I come to the company in a moment, externally is we are not having a crisis around unemployment. We're having high consumer spending levels. So we don't have an asset bubble that looks anything similar than what we've seen at that time. – Michael Miebach, Mastercard’s chief executive
- “From the numbers I just reviewed relative to 2019 levels, growth has been stable or improving in overall domestic payment volume, credit, debit, card-present and card-not-present volume. And this indicates the most of 2022 with no indication of any slowdown, including in more recent weeks.” – Alfred Kelly, Visa’s chief executive
In summary, yes, inflation is present and we are living in economic uncertainty. Based on the technical definition, the USA economy is already in a recession. But other aspects of the economy such as the jobs market and spending are robust.
While many newscasters are announcing very bad scenarios for the economy, CEOs of multi-billion dollar companies are stating our situation is not that bad at all.
Who do you trust? Someone who reads from the teleprompter or someone who oversees thousands of people and billions of dollars?
My Concluding Thoughts
Here is the growth in inflation in 2022 (year-on-year basis):
- Q1 January: 7.5%
- Q1 February: 7.9%
- Q1 March: 8.5%
- Q2 April: 8.3%
- Q2 May: 8.6%
- Q2 June 9.1%
- Q3 July: ?
- Q3 August: ?
- Q3 September: ?
From Q1 to Q2, despite rising inflation, top companies in S&P 500 still managed to report sequential growth. A notable mention is Alphabet. It earns most of its revenue from digital advertising. During bad times, such spendings are likely to be cut. Nonetheless, Alphabet still grew from Q1 to Q2.
This gives me confidence that the S&P 500 index is poised for further gains and that many stocks will recover along with it.
Fortune favours the patient. Every market correction will eventually come to an end.
With the stock market still in a rough spot, many investors are too nervous to invest in the market right now. While some companies may not survive at all, there are others which are already performing better and are likely to thrive in the future.
The important thing is to invest in great companies with strong fundamentals. If you’re interested to know which companies are worth investing in, I’ll be holding a foundation class for a LIMITED time only to share how you can identify the best stocks that are currently undervalued so you can get maximum returns during the rebound! Such opportunities don't come often, so click on the link here to sign up!