What to Expect in the Stock Market May 2-6
Big Tech DRAG
Before we talk about anything, Sunday was my MAMA's birthday. So it is necessary for me to talk about it in the Newsletter because without her, I would not be here.
HAPPY BIRTHDAY, MOM!!
MANY MORE YEARS in Jesus’ name!!
Now to the Business of MONEY
Looking at my Portfolio like
Stocks Closed the month with a whimper. The S&P 500 is officially in a correction (Down 10% or more) and the NASDAQ is in a full-blown CRASH (Down 20% or more). This was the worst month in the market since March 2020 (and we all know what happened then). The game of stock picking is once again proving not to be for the faint of heart. As some of the high fliers of the pandemic are now down more than 50%! This is why Warren Buffett says most people should just invest in the Indices cause it ain't easy in these streets. At the Berkshire annual shareholders meeting, Buffett said
“Over the next 20 years, I would expect [Berkshire’s stock portfolio] to have more capital gains than not. I’ll report to you in 20 years whether it’s happened or not.”
This is how you succeed, investing in the Stock Market.
Year To Date Market Returns:
My Takeaway: I am trying to make extra money so I can invest more during these periods. Typically when the markets go through these downturns, the return on the dollars I invest now will be much greater than the dollars I invested when the market was at an all-time high. So my advice to anyone who is around my age is to go find some extra income and get those dollars INVESTED!
Tale of the Tape
US GDP Shrinks?
The Commerce Department reported Q1 Gross Domestic Product (used to determine the growth of the economy like revenues for a company) for the US and showed that the US GDP shrank 1.4%. A shrinking GDP is usually a lagging indicator of a recession (which is defined by two consecutive quarters of shrinking GDP).
So is the US currently in a recession? Not Exactly
Consumer Spending continued to be extremely strong in the report, growing 2.7% despite inflationary pressures
Remember Consumer spending makes up 67% of GDP calculations
JPMorgan chief U.S. economist Michael Feroli, "The contraction — the first since the start of the pandemic — shouldn’t be taken as a signal of heightened near-term recession risks. It should instead reinforce concerns about the economy's longer-run growth potential.”
According to Axios' Neil Irwin: The factors that dragged down the economy were not directly related to consumer activity
Trade continued to drag on growth for the seventh straight quarter as exports fell unexpectedly.
In response to last year’s overcorrection of inventory buildup to avoid 2020’s supply chain snafus, businesses continued to slow down their inventory stockpiles — and GDP counts that as a negative.
When stripped of those two factors, the U.S. economy grew at a 2.6% rate last quarter, a slight uptick from the end of last year.
The sad reality for anyone trying to buy a home right now is; You Probably can't.
According to Axios' Felix Salmon
By the numbers: The average new single-family home sold for $360,000 in April 2020, according to Census Bureau data. Less than two years later, in March 2022, that number had risen by 45% to $524,000. (The median price rose 41%.)
At the same time, the mortgage available to two people making average hourly earnings has shrunk by $144,000 since August and now stands at a relatively low $469,000 — assuming they limit their mortgage payments to no more than 28% of their combined income.
Not since the housing bubble of 2007 has there been such a big gap between the cost of a new house and the amount a two-earner household can borrow in order to buy it
Man, I never realized the oil that my Mama cooked for all the soups and a variety of dishes, I grew up eating was this important to the international supply chain. Palm oil is used in so many different things from soaps to mayonnaise to ice cream to instant noodles to biodiesel. The biggest effects will be felt by anything that uses vegetable oil. It accounts for 58% of all oils traded in the world.
Last week, the largest palm oil exporter, Indonesia, banned exports of palm oil due to food shortages within its own borders due to the war in Ukraine limiting the amount of available food in the country. This has led to protests over higher food prices. This is another example of how the war in Ukraine is affecting every single person in the world. The World Bank warned that we are on the brink of the largest commodity shock since the 1970s.
An Aside: Nigeria, you are blessed with palm canals (kernel for non-Nigerians) and can be a major producer of crude palm oil. Where you at?! Opportunities always show up, the question is will you take them?
Stock Earnings - FAANG
The stock fell almost 5% immediately after reporting earnings on Tuesday
Revenue and Earnings missed analyst expectations (not by much)
Revenue: $68.01 billion, vs. $68.11 billion expected
Earnings per share (EPS): $24.62 per share, vs. $25.91 expected
YouTube Revenues were less than expected as well
$6.87 billion vs. $7.51 billion expected
Seems TikTok is stealing viewership from the platform
However, Sundar Pichai said on the Earnings call that YouTube’s TikTok competitor called Shorts now has 30 billion daily views, which is double the amount of views the prior quarter and four times as many as the year before.
But either way, this points to people not having any attention span anymore
“So this is really the skill of the century, that as the world becomes more of a distracting place, it’s going to bifurcate into two kinds of people: people who let their time and attention be manipulated and controlled by others, and people who say no—I will decide how I control my time because I am indistractable.” - Nir Eyal
Control your attention or the world will control it for you
Cloud was the beacon of shining light
Revenues grew 44% year over year
However, they are still not making any money on the platform
They lost $931 million but that is less than the $974 million a year ago
Overall: I think this was a great earnings report from Google and an overreaction from investors. The company is still growing earnings and revenue at over 20% which is amazing for a business the size of Google
Disclosure: I am a Google Shareholder and I continue buying as the stock falls
Like Google, this company just continues printing money
But unlike Google, the stock actually rallied 4% after releasing earnings
Microsoft beat earnings and revenue expectations but only because they raised prices last quarter.
Revenue: $49.36 billion, vs. $49.05 billion as expected by analysts
Earnings: $2.22 per share, adjusted, vs. $2.19 as expected by analysts
The big story for Microsoft continues to be the growth of Azure Cloud Services
Like Google, it also grew at 46% in the quarter
But unlike Google, it is extremely profitable for Microsoft
Its Office and Software suite of products few at 17%
This is shocking, at this point doesn't everyone already have Microsoft Office?
It’s probably LinkedIn that is aiding the growth here
The only disappointment was the slow growth of Xbox and Xbox Services
It only grew 4% in the Quarter
Remember Microsoft is still trying to buy Activision and already closed on Nuance Communications
Overall: Microsoft grew revenue at 17% year over year. Which is unbelievable at some point the law of large numbers has to take effect right?
Facebook reported earnings on Wednesday
Things are looking a bit on the up and up kinda
Growth has slowed to its lowest level in the history of the company
Share flew 18% shortly after reporting and have been climbing higher ever since
Earnings per share: $2.72 vs $2.56 expected, according to a Refinitiv survey of analysts
Revenue: $27.91 billion vs $28.2 billion expected, according to Refinitiv
Basically, the bar was set super low because no one believes Facebook can survive anymore
But the demise of Facebook was very much overblown
They are still making booku bucks
Main takeaway: from Facebook is sometimes the headlines are not always true. Look deeper, sometimes those pose some of the best investment opportunities
AHEM... Netflix 👀
Apple reported earnings on Thursday and just WOW
This company is just amazing. I was not expecting them to be able to top their pandemic highs but they did it.
They have single-handedly saved the markets from going into a full-blown CRASH!
Revenue grew almost 9% which is amazing for a business that is doing almost $100 billion a quarter
EPS: $1.52 vs. $1.43 estimated
Revenue: $97.28 billion vs. $93.89 billion estimated, up 8.59% year over year
Services revenue: $19.82 billion vs. $19.72 billion estimated, up 17.28% year over year
Services in my opinion is the most important growth factor for Apple
Gross margin: 43.7% vs. 43.1% estimated
My mind is still 🤯 that a hardware company can have such margins
However, they do expect a revenue slowdown in Q2 to the tune of $8 billion
due to China shut down and chip supply shortages.
Amazon was the last of the Mega-Cap Big Tech companies to report earnings last week and they single-handedly crashed the market. At least that’s what I am telling myself
After reporting the stock fell 14%, dragging the entire market with it.
Was it really that bad of a quarter? YES but also NO
Amazon reported a net loss of $3.8 billion
However; most of that was driven by a $7.6 billion loss from the investment in Rivian
Which is a paper loss that should really not be accounted for. Plus Amazon is WAY ahead on that investment
Like Apple, Amazon is facing pressures from the global supply chain and forecasted growth stalling a bit in Q2
However, they moved Prime Day to Q3 which will have an impact on sales in Q2
Revenue overall grew 7% for the quarter
Amazon Web Services: $ 18.44 billion vs. $18.27 billion expected, according to StreetAccount
37% Growth Year over Year
Generated 57% of the operating income growth. Basically, all the profits Amazon makes are from AWS
Amazon is a Cloud Computing company with an online retail Side-hustle
Advertising: $7.88 billion vs. $8.17 billion expected, according to StreetAccount
23% Growth Year over Year
Overall: Things are going to be rough for Amazon in the short term but Amazon is still very much in a strong position for future growth. I see the recent stock plunge as an opportunity
Disclosure: I am a Google Shareholder and I continue buying as the stock falls
Last week was all about stocks mainly cause big tech mega-caps drive the markets. This week will be all about economic indicators.
Jerome Powell and his Fed Buddies will be hosting their bi-monthly FOMC meeting on Tuesday and Wednesday followed by a press conference from Jerome on Wednesday. It is widely expected that Papa Powell will announce a Fed Funds Rate increase of 50 basis points (fancy word for 0.5%).
The Fed is trying to fight back against inflation brought on after the pandemic. Remember the Fed has two mandates:
Price Stability aka managing inflation
Maximizing Employment (people forget this one)
The only problem is the main issue with inflation is still supply chain disruptions that are taking much longer to settle than expected. So not much the Feds can do but they can at least try.
At the same time, the Fed is expected to begin selling assets from its massive $9 trillion balance sheet that it had used to keep markets afloat during the pandemic. But also to make money easily accessible for businesses and individuals. Both of these things are not great for markets and will add more pressure to the already pressurized stock market.
Plus the fear of a recession looms large over the Fed as they begin their tightening measures. Bank of America in a recent study sees a 1 in 3 chance for a recession by the end of the year. But then again in March, they said there was no chance of a recession so I tend to ignore these forecasts. I tend to be more optimistic but there are a lot of pressures facing the economy in the short term.
We get the Job Openings and Labor Turnover Survey (JOLTS), showing the total number of hires, quits, separations, and job openings for the month of March. Combined with Nonfarm Payroll will give a good perspective of the strength of the labor market.
The labor market has remained extremely tight coming out of the pandemic (part of the reason I don't see a recession but I could be wrong). It's expected that another 400,000 jobs were added in April as more people unretire. So the Fed has done a good job aiding the labor market to rebound as quickly as it did.
There are some interesting companies reporting earnings but none that I care too much about minus Airbnb. But here's the entire list:
Totally Unnecessary Man U Update
Luckily Man U have not played just yet. So my mental state is in a great place. Plus Real Madrid won La Liga on Saturday.
Thank you for Rocking With ME
See y’all right here on Wednesday
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Remember GENEROSITY > greed
God bless Each and Everyone of y’all