The equity market is running through the busiest month of the year. Traders and investors were in a resilience mood with the hope for better earnings. Many economists were expecting a slow growth in U.S. economy due to the protectionist measure of U.S administration on the prolonged trade war with China and its trading partner on last month. But the traders and investors kept faith on fundamental which was pretty good. No doubt Federal Reserve and their report also keep their hope alive.
The 2nd quarter earnings session is going to end, near about half of the S&P500 companies and big name already reported their earnings and beat the estimates. U.S. data also showing the pace of economic growth. Are these earnings give a roadmap for the rest of the year?
A global economic expansion, corporate tax cut, share buyback helped the companies to raise the estimates on previous earnings session and wall street enjoyed the most powerful earnings at that time but the current scenario is completely different as many things have changed in last three months. In this earnings, investors want to see was the companies able to maintain their estimates? The answer seems to be a real downgrade in expectation because the beat of estimates is significant and off the chart.
Despite trade war issue investors and traders were silent as the two group were being isolated - FAANG and Small-cap stocks. The amazing growth of the most popular and high profile technology group FAANG stocks always have been the centre of attraction to the investors and the safest place to invest. And the small cap-when the economy is good they performed better even if there will be any tariff issue. But in the recent scenario, the tech stocks which have been dominating the value stocks, but are now staggering. It is not hard to understand why it is happening. The major reason is the weakness of two Faang stock - Facebook and Netflix.
The downturn started after Netflix reported their weaker guidance for this quarter than expected. It also raised concerns as competitors like Amazon ramp up their streaming efforts. Their earnings helped to bring back the crown to Disney of being the world's most valuable media company. Missed its added subscriber projections by 45% domestically and 12% internationally is a significant dropped in the growth when compared with the prior two quarters. It'd be interesting to wait and watch how long Netflix remains to dominate online streaming especially when its competitors are growing at a strong pace.
Amazon the tech giant continued it's bullish run and still on the path to smash all the competitors by massive earnings which were not only its biggest quarterly profit in history with an extension of a strong year-to-date rally and also hit new records and again showed its money-making prowess.
Advertising business of Alphabet and putting forth real earnings prospects for its autonomous driving arm impressed the street in this earnings.
When it comes to the social media giant Facebook, all the bad news from data scandal to now came in a report - a slowing user and advertising sales growth with a disastrous report which guided a brutal sell-off in shares of the social network and also pushed them to the bearish territory. The biggest one day drop in market value in the U.S. stock market history which weighted the technology sector as well as the broader market.
The recent sell-off invited such a situation that if Apple miss the revenue the selling pressure will continue. So the earnings of Apple was likely to shape whether the selling deepens or the declines begins to draw buyers. But expensive iPhone X helped the company to beat the street's expectation yet again this quarter. 40% increase in EPS and 17% revenue growth year over the year give a shade of their iPhone selling which was slightly missed the expectation. The results show how the iPhone maker is finding ways to grow amid a contracting global smartphone market that is roiling its rivals. Apple appears set to continue posting big returns as long as iPhone fans keep paying the premium. At least for the next few months, investor momentum will be focused on the next iPhone launch.
The market is now ahead of exciting times. The deterioration in growth pushed the broader market to new heights and losing some lustre because of the investor's fret about stock valuations and the outlook for economic growth in the ninth year of an economic expansion in the U.S.
Growth stock vs value stock which will lead the rest of the year? The answer is lying in the depth of future. But the good thing is the underlying US economy still remains strong and in favour of the traders and investors.
In an optimist view, reporting is about the past, investing is about the future. Market downturns are completely regular, and normal events The past can be helpful in gauging what will happen in the future, but there are many more factors to be calculated into investment decisions.