The S&P 500 and Nasdaq Composite had a bad start of the week but they finished higher Friday to conclude their best week so far this year, led by continued strength in quarterly earnings reports and a better than expected January jobs report. Amazon shares surged 13.5% for their biggest one-day gain since 2015, and Snap skyrocketed 58%, suggesting that Meta Platforms' earnings disappointment that sent shares crashing 26% on Thursday was a company-specific issue. Crude oil soared to a fresh seven-year high near $93 a barrel, and the average price of gasoline surged to the highest in more than seven years. U.S. Treasury prices fell with the 10-year yield briefly topping 1.93%, jumping from about 1.5% at the start of the year as the Federal Reserve has signaled a more aggressive fight against inflation. For the week, the Dow Jones average added 1.1%, the S&P gained 1.5%, and the Nasdaq jumped 2.4%.
Top S&P 500 sectors last week:
- Energy sector + 4.93% (ETF: XLE already up more than 20% YTD)
- Consumer discretionary sector + 3.94% (ETF: XLY)
- Financial sector + 3.52% (ETF: XLF)
Top news last week:
- Meta (FB) in freefall: A tarnished earnings report from Meta Platforms (FB), caused the shares of the company to tumble 26% on Thursday, wiping out $251B in market capitalization. The worries spilled over to the Nasdaq Composite, which slid almost 4%. Investors were surprised by weaker user growth (DAUs missed estimates of 1.95B), while Meta gave a disappointing sales forecast for the current period ($27B-$29B vs. $30.3B). Looking under the surface, one can see that the vast majority of Facebook's revenue comes from targeted advertising, though the company has been severely hurt by Apple's (AAPL) privacy changes, which will result in a $10B hit in 2022. CEO Mark Zuckerberg also acknowledged that Meta is facing serious competition for user time and attention (think TikTok and Roblox (RBLX)), causing the company to pivot into a whole new arena: the Metaverse. Meta still has to convince shareholders that its embrace of the Metaverse will pay off, and despite the rebranding, the company at the moment is primarily an advertising company.
- More Big Tech results:
o Google parent Alphabet (GOOG, GOOGL) reported a set of blockbuster earnings late Tuesday, but perhaps the more notable news was a rare 20-for-1 stock split that added to the wave of investor enthusiasm. It's only the second time the company has split its shares since going public in 2004, and while it doesn't really affect the fundamentals, the move will make the stock more affordable or easier to execute some options contracts. Earnings rose by a third to $30.69 a share (compared to $22.30 per share a year ago), while revenue of $75B (32% Y/Y) came in more than $3.5B ahead of analyst expectations. The majority of sales came from Google advertising, which includes search, YouTube and the Google network, showing the resilience of advertising despite the pandemic. Price of GOOG is up more than 7% during the week.
o Amazon (AMZN) also reported a set of bumper results that smashed operating income and EPS expectations. Investors cheered news that Prime annual membership will be hiked to $139 (from $119), reflecting higher wages and transportation costs. Amazon also received a big boost from its investments in electric vehicle company Rivian (RIVN), as well as surging revenue from its AWS cloud computing unit (+40% to $17.8B) and advertising businesses (+32% to $9.7B). Shares of Amazon soared more than 13% on Friday.
- Spotify controversy: Spotify (SPOT) went into damage control mode this week because of the controversial content on its platform. What started the controversy was a podcast episode featuring mRNA virologist Dr. Robert Malone on the show of popular host Joe Rogan, who signed a reported $100M deal with Spotify back in 2020. Several popular artists pulled their music from Spotify in response, citing "vaccine misinformation," while calls to boycott the platform grew on social media with hashtag #DeleteSpotify. That wasn't all. Spotify (SPOT) made waves for the second time by plunging as much as 23% AH on Wednesday with an earnings report that rippled through markets. Estimates for user growth in Q1 were barely in line with analyst projections, and the company scrapped annual guidance for the foreseeable future since the "vast majority of our initiatives are multi-year in nature and measured as such." However, sales outperformed in the current quarter, with subscription-based revenue climbing 22% to €2.3B and advertising revenue surging 40% to €394M. On Friday SPOT recovered some of its losses and stock is down around 7.5% during the week.
Earnings:
Monday, February 7: Tyson Foods (TSN), Hasbro (HAS), Amgen (AMGN), Tenet Healthcare (THC) and Simon Property (SPG).
Tuesday, February 8: BP (BP), Centene (CNC), Pfizer (PFE), Sysco (SYY), DuPont (DD), Yum China (YUMC) and Chipotle (CMG).
Wednesday, February 9: Honda Motor (HMC), CVS Health (CVS), MSG Entertainment (MSGE) and DraftKings (DKNG), PepsiCo (PEP), Disney (DIS), Uber (UBER) and Mattel (MAT).
Thursday, February 10: AstraZeneca (AZN), Coca-Cola (KO), Philip Morris International (PM) and Kellogg (K), Zillow (ZG) and Equitable Holdings (EQH).
Friday, February 11: Enbridge (ENB) and Under Armour (UAA).
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