U.S. stock indexes posted a volatile reaction to a mixed bag of quarterly reports from top-tier technology companies after the closing bell on Thursday. Yesterday’s late reports came amid turbulence on Wall Street, with soaring coronavirus cases and uncertainty about a fiscal relief bill in Washington dimming the outlook for an economic recovery and knocking over 3% off the S&P 500 so far this week.
After the cash market close on Thursday, Alphabet (Google) rallied, Apple sank, Twitter tumbled and Facebook dropped. Share swings in these companies following their earnings reports after the bell sent exchange-traded funds tracking the S&P 500 and NASDAQ Composite down about 1% each, suggesting downside pressure on Wall Street on Friday.
Alphabet Sales Growth Revived as Advertisers Flock Back to Google
Google parent Alphabet Inc on Thursday powered back to sales growth, beating analysts’ estimates for the third quarter as businesses initially hobbled by the coronavirus pandemic resumed advertising with the internet’s biggest supplier of ads.
Alphabet shares, up 13% on the year, rose 8.5% after hours to $1,689.89.
Apple’s Late iPhone Launch Temporarily Wiped $100 Billion Off Its Stock Value
The late launch of new 5G phones caused Apple Inc’s customers to put off buying new devices, leading the company on Thursday to report the steepest quarterly drop in iPhone sales in two years.
Apple fell over 5% at one point in after-hours trade, wiping $100 billion from its stock market value.
Since 2013, Apple has delivered new iPhones each September like clockwork. But pandemic-induced delays pushed the announcement back a month, with some devices still yet to ship.
Even as booming sales of Macs and AirPods boosted overall revenue and profit above what analysts had expected, iPhone sales dropped 20.7% to $26.4 billion.
Twitter Warns US Election Could Affect Ad Sales, Shares Drop 16%
Twitter Inc on Thursday added fewer users than Wall Street had expected and said a rise in expenses would accelerate in the fourth quarter, sending its shares tumbling 16%.
The San Francisco-based social media company said it expected expenses to increase by close to 20% in the fourth quarter compared with a year ago due to an increase in investments.
The company also cautioned that it was hard to predict how advertisers would react as the U.S. presidential election nears on November 3.
Shares of Twitter fell to $44.00 in after-market trading.
Facebook Anticipates Tougher 2021 Even as Pandemic Boosts Ad Revenue
Facebook Inc on Thursday warned of a tougher 2021 despite beating analysts’ estimates for quarterly revenue as businesses adjusting to the global coronavirus pandemic continued to rely on the company’s digital ad tools.
The world’s biggest social media company said in its outlook that it faced “a significant amount of uncertainty,” citing pending privacy changes by Apple and a possible reversal in the pandemic-prompted shift to online commerce.
“Considering that online commerce in our largest ad vertical, a change in this trend could serve as a headwind to our 2021 ad revenue growth,” it said.
Shares of the company were lower in extended trading.
Amazon Sees Pandemic Boosting Holiday Sales and Investment in Delivery
Amazon.com Inc on Thursday forecast a jump in holiday sales – and costs related to COVID-19 – as consumers continued to shop more online during the pandemic.
A company executive added that heightened spending on delivery infrastructure would likely continue over years, and shares fell 2% in after-hours trading.
For the fourth quarter, Amazon said it expects net sales of $112 billion to $121 billion. That would mark the company’s first over $100 billion and follows a third-quarter revenue beat that analysts such as eMarketer’s Andrew Lipsman did not expect.
“While it was clear that the pandemic-driven shift to e-commerce would keep Amazon’s topline elevated, it surprised by easily surpassing an already high bar,” Lipsman said.
Without Facebook, Apple, Amazon, Netflix and Alphabet – the so-called FAANG stocks – the S&P 500 would be down about 4% in 2020, compared with the index’s 2% year-to-date rise, according to a research note from Bespoke Investment Group on Thursday.
“Due to both the huge weight of these stocks and their outperformance, the market has become more reliant on them than ever before for its gains,” according to Bespoke.
On October 28, the CEOs of Facebook (Mark Zuckerberg), Google (Sundar Pichai), and Twitter (Jack Dorsey) are set to testify before a Senate hearing about how these tech giants manage hate speech, misinformation, and privacy on their respective platforms. This will be a closely-followed hearing, considering that it comes mere days before the hotly contested US presidential elections on November 3.
Then, a day after the Senate hearing, Amazon, Apple, Alphabet (Google’s parent company), Facebook, and Twitter are all scheduled to release their respective Q3 results after US markets close on October 29.
Given that these tech titans are set to feature prominently in market headlines this week, such prospects may make for volatile trading, and the price swings may be captured within the FXTM Social Media index.
FXTM Social Media Index beats major US benchmarks
This index, which comprises four, evenly-weighted constituents, namely Google, Facebook, Twitter, and Snapchat, has far outperformed the gains seen in the major US benchmark indices so far in October. Since US markets closed on September 30th, the FXTM Social Media index has risen by 8.3 percent, even after Monday’s selloff. Compare that to the Nasdaq Composite index, which managed 1.71 percent during the same period, while the S&P 500 index has a month-to-date climb of 1.13 percent.
The FXTM Social Media index’s gains of late have been amplified by Snapchat’s inclusion. Shares of the loss-making social media platform have soared by an astonishing 58 percent on a month-to-date basis, setting multiple record highs after reporting a blowout Q3 quarterly earnings last week.
At home and bored: Social media’s dream
Advertisers ramped up their spending on Snapchat, knowing that users are using the platform a lot more amid the pandemic, given the disruptions to their daily routines and physical interactions. Snapchat has already added 31 million new daily active users in the first nine months of 2020, all while managing to steer clear of the negative headlines that have engulfed other platforms such as TikTok and Facebook.
Should Alphabet, Facebook, and Twitter also announce a Snapchat-esque Q3 earnings bonanza, one that’s fueled by ad spending, that could spell even more upside for the FXTM Social Media index before the week is up, provided that the Senate’s grilling of Zuckerberg, Pichai, and Dorsey on Wednesday do not heighten concerns surrounding these companies.
A bumpy upwards climb?
From a technical perspective, the FXTM Social Media index is now trading at relatively healthier levels after yesterday’s pullback, given that its 14-day relative strength index has pulled away from the 70 mark, which typically denotes overbought conditions. Still, this index is not immune to broader sentiment, which could see more market angst as investors’ concerns over looming US political risks are laid bare.
And the fundamentals of these social media giants could be clouded by the bipartisan campaign against Big Tech. Note that Zuckerberg and Dorsey are set to attend a separate Senate hearing on November 17th, which is two weeks after the US elections polling day, while Google is contending with a massive antitrust lawsuit by the US Justice Department.
While the legislative scrutiny could weigh on the performance of social media stocks, these downside risks may not be fully manifested for years more. As long as the tailwinds in this pandemic era remain intact, there could potentially be more gains to be had once we get to the other side of the US elections.
Written on 27/10/20 02:00 GMT by Han Tan, Market Analyst at FXTM
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Google parent Alphabet Inc. (GOOGL) reports Q3 2020 earnings after Thursday’s U.S. closing bell, with analysts expecting a profit of $11.14 per-share on $42.81 billion in revenue. That would mark a modest 10% earnings-per-share (EPS) increase compared to the same quarter in 2019. The stock fell after a mixed Q2 report in July but bottomed out quickly, ahead of a strong advance that posted an all-time high at 1726.10 in September.
Department Of Justice Files Anti-Trust Suit
The U.S. Department of Justice filed an anti-trust suit against Alphabet last week, alleging “Google has unlawfully maintained monopolies in search and search advertising by (1) entering into exclusivity agreements that forbid pre-installation of any competing search service and (2) entering into tying and other arrangements that force pre-installation of its search applications in prime locations on mobile devices and make them undeletable”.
DoJ intends to target a questionable deal with an alleged co-conspirator to prosecute their anti-trust case. According to The New York Times, the company pays Apple Inc. (AAPL) an estimated $8 to $12 billion per year to make Google the exclusive search engine for all their devices and services, including the iPhone and Siri. More importantly, this is alleged to be Alphabet’s biggest single payout, accounting for as much as 21% of Apple’s annual profits.
Wall Street And Technical Outlook
Wall Street consensus is utterly euphoric, with a ‘Strong Buy’ rating based upon 31 ’Buy’ and 1 ‘Hold’ recommendation. No analysts are recommending that shareholders close positions and move to the sidelines. Price targets currently range from a low of $1,600 to a Street-high $2,202 while the stock opened Monday’s U.S. session just $15 above the low target. This suggests Alphabet is undervalued but the lawsuit could weigh on buying pressure in coming months.
The stock reversed in September at a rising highs trendline going back to 2015 and sold off to the 200-day moving average. It bounced off that support level into October and has now recovered about 75% of the downdraft. Accumulation readings are perking up after garden variety profit-taking and a strong quarterly report could close the distance into the prior high. Even so, it will be tough to overcome trendline resistance between now and year’s end.
For a bull trend to perpetuate it occasionally needs to climb a wall of worry. Bearish investors are always on the lookout for a theme that will provide them with an opportunity to short a stock or sector. If prices rise, investors who shorted-shares will need to cover, perpetuating the bull-trend rally. This concept has recently played out when it comes to large-tech and communication stocks which have seen their stock prices temporarily decline as regulatory scrutiny has become the next wall of worry.
Congress is Always Looking to Flex in Muscles
Congress always needs a whipping boy. Social media outlets continue to be the target of congressional frustration and more recently have been drawing the ire of several oversight committees. Most recently, Facebook and Google have been accused of engaging in anti-competitive, monopoly-style tactics. The House of Representations antitrust panel found during a 16-month investigation that these two companies relied on dubious, harmful tactics to achieve their dominance in web search and social networking. The Department of Justice announced on October 20, that it will file an antitrust lawsuit against Google.
Social media platforms, like Facebook, and Snapchat, have repeatedly found themselves in the United States government’s crosshairs as their power has continued to grow since the 2016 elections. Social media companies have no designated oversight authority that regulates their activities. If these companies get slapped with new rules, regulations, and fines it could trigger a broad market selloff for stocks. This fear has recently been priced into some of the more attractive large-cap tech shares which have provided an excellent buying-point within a long-term bull trend.
Buying Opportunity in Snapchat
Snap Inc, is an American company and maintains several products and services, namely Snapchat, Spectacles, and Bitmoji. The share price is in the midst of a bull trend but recently pulled-back into oversold-territory as the wall of worry gained traction. SNAP is scheduled to release quarterly earnings results after the closing bell on October 20, 2020. The social media concern is expected to report earnings per share of $-0.05 versus $-0.04 a year ago, on revenue of $549 million. Analyst estimates of SNAP’s earnings have remained unchanged over the past 30-days, and the company is expected to begin turning a profit in 2021.
From a technical analysis perspective, SNAP share price is in a strong uptrend as seen on the combo chart of the 30-minutes and daily chart provided. I see SNAP with potential measured move using a Fibonacci extension to reach $39 per share before the year-end.
Notice the oversold zone on the SNAP chart shaded lime green. That is the first oversold pullback after a new trend takes place. The 30-minute price chart saw both an RSI below 30 and a fast stochastic below 20, which is an ideal low-risk entry point. The daily chart of SNAP also shows that the share price is fast approaching its all-time high which occurred right after its IPO. A break of this level will lead to an acceleration in price to its target Fibonacci level near $39 per share.
Netflix Has its First Oversold Pullback in a Fresh New Uptrend
I believe that Netflix’s business model of providing subscriptions to streaming entertainment is benefitting substantially from COVID-19. The company is scheduled to report financial results after the bell on October 20, 2020. The company is expected to deliver earnings per share of $2.13 versus $1.47 per share a year ago. Revenue is forecasted to rise to $6.38 billion. The average earnings per share estimate have climbed slightly more than 1% during the last 7-days. Growth estimates are expected to expand by nearly 45%. Global subscriptions are forecast to rise sharply higher as the U.S. unemployment rate surged and more people were stuck at home during the pandemic.
The technical picture shows that NFLX recently dipped as the wall of worry drove prices down temporarily. NFLX is in a fresh new uptrend and just had its first oversold zone pullback. The 30-minute chart reflects a decline where the fast stochastic printed a reading below 20 representing an oversold situation. A breakout of the tight range capped by resistance near $560 a share will lead to a test of target resistance with an upside Fibonacci target of $742.
The Bottom Line
For stock prices to continue to rally they generally need to take a pause. During these pauses, new information can arise that allows bearish investors to short these stocks generating a wall of worry. For me, this represents an excellent opportunity to purchases shares especially during their first dip in a fresh uptrend. Both SNAP and NFLX have experienced recent dips, generated by the wall-of-worry associated with new potential congressional oversight concerning antitrust regulations.
Both NFLX and SNAP are scheduled to deliver financial results after the closing bell on October 20. Both stocks have exhibited behaviors that show that the bull-trend is intact and I expect the price to continue to target higher Fibonacci target levels as these stocks continue to climb the wall-of-worry.
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Alphabet stock (GOOG) is showing its bullishness by attempting to break above the 21 ema zone. The bullish rally started after price action completed a bearish pullback at the 50% Fibonacci retracement level. What are the main targets?
Price Charts and Technical Analysis
GOOG’s first major obstacle is the head and shoulders reversal chart pattern (red boxes). Price is expected to make a light pullback at that zone but then continue higher towards the Wizz target (orange and green arrows).
Only if price action were to show very strong bearish pressure (red arrow) at the resistance would the bullish outlook change. In that case, a deeper pullback towards the 61.8% Fibonacci level is possible.
A bearish bounce at the Wizz 7 target could indicate a larger ABC (orange) or ABCDE correction within wave 4 (purple). A break above the Wizz 7 confirms the wave 5 (purple).
The 4 hour chart has price action showing a break out above the local resistance (red). The blue candles from Elliott Wave indicators confirm the bullishness.
A first target is located at the 61.8% Fib and -100% Fib target (red circle). A bearish bounce at either of the two targets (red circle) indicates a wave B (orange). A break above those targets confirms a wave 3 and much more upside.
The main method to recognize whether price is in a real trend or larger correction is to keep an eye on the patterns after price reaches the targets:
Strong bearish price action indicates reversal.
Sideways price movement indicates bullish continuation.
The analysis has been done with the indicators and template from the SWAT method (simple wave analysis and trading). For more daily technical and wave analysis and updates, sign-up to our newsletter.
Alphabet (GOOG) has made a serious decline in the past trading days. The bearish momentum is strong and testing the Fibonacci levels and long-term moving averages. Can GOOG make a bullish recovery?
Price Charts and Technical Analysis
Probably yes. The support zone is very strong (blue boxes) and a bullish bounce is likely to take place. The 50-61.8% Fibonacci retracement levels combined with the 144-233 emas should send price action higher. The next question is whether price will be able to fully break above the 21 ema zone. Also here a bounce is probable and the bears could push it lower to test the previous bottom. This is when the moment of truth for the Alphabet stock arrives. Will price action break through the bottom for a larger bearish correction (orange arrows)? Or will it bounce and test the previous top (green arrows)? The answer depends on the chart and price patterns that emerge around the key support zone (purple box).
Alphabet is likely to make a bullish bounce due to the pinbar. The bullish wick at the bottom of the current candlestick is indicating buying pressure. But as price moves up, it will face hefty resistance from the head and shoulders zone (red boxes) and the consolidation zone (orange box). A bearish break below the -61.8% Fibonacci (green box) confirms a deep bearish ABC (orange) pattern. A bullish bounce at the green box makes a bullish ABC (purple) more likely.
The analysis has been done with the indicators and template from the SWAT method (simple wave analysis and trading). For more daily technical and wave analysis and updates, sign-up to our newsletter
The washout-low price move in FANG stocks may present a needed rotation in price before another upside move sets up.
Tweezer Bottoms pattern and RSI pennant formation suggest very clear support levels.
Watch how Volume and the VIX pick up over the next few days, and how price reacts to this bounce at 945.
Our Custom FANG Index (consisting of Facebook,Microsoft, Twitter,Amazon,Google, and Nvidia) shows the FANG Index, and technology sector, are trading just above critical support near 945. The congestion area on this chart between July and August just below this 945 level highlights the key resistance/support level that we are currently watching as price support.
TWEEZER BOTTOMS MAY SUGGEST MORE UPSIDE POTENTIAL
This Custom FANG Index Weekly chart clearly slows the Tweezer Bottoms pattern that formed in the markets after the close on Tuesday, September 8, 2020. This pattern suggests a very clear support level is found near the recent lows – near 945. If this support level holds, then the FANG Index price should begin to bounce and move higher. If this support level is broken, prices may continue to push lower while attempting to find historical support levels.
The Fibonacci Price Amplitude Arcs suggest a broader price frequency inflection point is also setting up near the recent peak. This Fibonacci Price Amplitude Arc suggests a major inflection point is taking place in the Custom FANG index right now. We believe the 945 level resulting from the Tweezer Bottoms pattern is a critical price level to support a future price rally in this sector.
Lastly, we want to point out the Pennant/Flag formation in the RSI indicator over the past 8+ months (highlighted in RED). The combination of these technical patterns, as well as the new Tweezer Bottoms pattern, suggests the current breakdown to the 945 level may present a “washout-low” type rotation after the RSI Pennant Apex. Overall, this downside move in the FANG index represents a moderately strong APEX rotation. If this is a “washout” rotation, then we may be setting up for another big upside price move soon.
Right now, we are cautiously watching the 945 level and expecting the Custom FANG Index to recover from these Tweezer Bottoms lows. We believe there is a very solid chance that the washout-low price move may present a needed rotation in price before another upside move sets up.
Watch for the markets and technology sector to attempt a recovery as long as the 945 level on this Custom FANG Index chart holds. Isn’t it time you learned how I can help you better understand technical analysis as well as find and execute better trades? If you look back at past research, you will see that my incredible team and our proprietary technical analysis tools have accurately shown you what to expect from the markets in the future. Do you want to now learn how to profit from these expected moves? If so, sign up for my Active ETF Swing Trade Signals today!
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The Google stock is breaking into new highs. Can the uptrend keep pushing higher or will a reversal take place? Let’s review the daily chart in this article.
Price Charts and Technical Analysis
Google has made a major bullish bounce since the massive decline in March 2020. The March crash seems to be a wave 4 (purple) retracement. Therefore, the current uptrend is part of a larger wave 5 (purple). The momentum however remains strong and price action is probably still pusher higher within a wave 3 (orange).
Once the wave 3 is completed, a larger but shallow pullback within wave 4 (orange) is expected. Price action could use the support from the previous top and bottoms to make a bullish bounce and uptrend continuation. Only a deep correction makes the bullish outlook unlikely (red x). For the moment, Google stock is expecting at least one more higher high.
The analysis has been done with the indicators and template from the SWAT method (simple wave analysis and trading). For more daily technical and wave analysis and updates, sign-up to our newsletter
The major U.S. stock indexes finished lower on Wednesday after minutes from July’s U.S. Federal Reserve meeting failed to indicate a more dovish shift in monetary policy, possibly in September. Particularly disappointing for investors was the Fed ruling out for now more dovish monetary policy measures such as yield curve control and the adoption of an average inflation target.
Under yield-curve control, the Fed would cap yields at a specific point on the curve by buying 2- or 3-year maturities, for example, to reinforce guidance that rates are not going up anytime soon.
In minutes of the Fed’s July meeting, a majority of its monetary policy committee commented on yield caps and targets as a monetary policy tool. Of those who discussed this option, most judged that yield caps and targets would likely provide only modest benefits in the current environment.
Fed Sees Uncertain Path to Recovery
The Fed also raised concerns that the U.S. economy’s recovery from the devastating effects of the coronavirus pandemic faced a highly uncertain path.
Policymakers noted that the swift rebound in employment seen in May and June had likely slowed and that additional “substantial improvement” in the labor market would hinge on a “broad and sustained” reopening of business activity.
Apple Valued at $2 Trillion
Just two years after Apple became the first publicly listed U.S. company with a $1 trillion stock market value, the iPhone maker has now topped $2 trillion.
Apple now accounts for close to 7% of the S&P 500’s total market value. Its market capitalization is about equal to the combined values of the S&P 500’s 200 smallest companies.
Microsoft and Amazon follow Apple as the most valuable publicly traded U.S. companies, each at about $1.6 trillion. They are followed by Google-owner Alphabet, at just over $1 trillion.
Target Reports Monster Quarter
Target on Wednesday blew past every forecast on Wall Street for its fiscal second quarter as it attracted millions of new customers online, setting a record for same-store sales that drove profits up by an eye-popping 80.3% to $1.7 billion.
Shares were up nearly 13% Wednesday afternoon. It reached a 52-week high of $154.69, bringing up the company’s market cap to about $77 billion.
Lowe’s Reports Blowout Quarter
Lowe’s said customers bought supplies for DIY projects, kicked off renovations and stepped up their landscaping as they skipped dining out and scaled back summer trips during the coronavirus pandemic.
That translated to huge gains for the home improvement retailer, allowing it to blow past Wall Street forecasts with a 30% surge in revenue and 68.7% jump in profit during the fiscal second quarter.
Shares of the company were up less than 1% Wednesday afternoon. They reached a 52-week high of $162.89 earlier in the day.
Advancing issues outnumbered declining ones on the NYSE by a 1.03-to-1 ratio; on NASDAQ, a 1.24-to-1 ratio favored advancers.
The S&P 500 posted 26 new 52-week highs and no new lows; the NASDAQ Composite recorded 70 new highs and 20 new lows.
The major Asia-Pacific stock indexes are trading mixed early Monday as investors remained cautious over heightened U.S.-China tensions in recent weeks. Worries over flaring tensions between the two economic powerhouses weighed on risk sentiment although a recovery in industrial activity in the world’s second-largest economy capped losses. Nonetheless, ranges remained tight on Monday.
At 03:30 GMT, Japan’s Nikkei 225 Index is trading 22329.94, down 88.21 or -0.39%. Hong Kong’s Hang Seng Index is at 24429.96, down 102.66 or -0.42% and South Korea’s KOSPI Index is at 2373.37, up 21.70 or -0.92%.
In China, the Shanghai Index is trading 3367.01, up 12.97 or +0.39% and Australia’s S&P/ASX 200 Index is at 6085.50, up 80.70 or 1.34%.
Trading is expected to be on the light side with Japanese markets closed for public holidays.
US-China Relations Remain at Forefront
The latest round of concerns was fueled late last week when U.S. President Donald Trump signed two executive orders banning WeChat, owned by Chinese tech giant Tencent, and TikTok in 45 days’ time while announcing sanctions on 11 Chinese and Hong Kong officials.
Additionally, U.S. regulators recommended that overseas firms listed on American exchanges be subject to U.S. public audit reviews from 2022.
In less than a week, traders could feel more grief if the latest moves by the Trump administration jeopardize the U.S.-China trade talks scheduled for August 15. Finally, there is always the possibility of Chinese retaliation to these moves.
“The running assumption in markets has been President Trump needed the phase one deal to succeed, as much as China, this side of the November elections… At the same time President Trump is running a hard China line into the elections,” Tapas Strickland, director of markets & economics at National Australia Bank said.
TikTok suing Trump Administration Over Ban as Soon as Tuesday: Report
Social media giant TikTok is planning to sue the Trump administration as soon as Tuesday over its planned ban of the app in the United States, according to an NPR report.
TikTok declined to comment on a potential lawsuit, but the company has said that it will do whatever is possible to ensure that TikTok is treated fairly.
“We will pursue all remedies available to us in order to ensure that the rule of law is not discarded and that our company and our users are treated fairly – if not by the Administration, then by the U.S. Courts,” TikTok said in a statement.
NPR reports that the lawsuit will argue the ban is unconstitutional and that its national security justification is baseless.
“TikTok automatically captures vast swaths of information from its users, including Internet and other network activity information such as location data and browsing and search histories, the executive order reads. “This data collection threatens to allow the Chinese Communist Party access to Americans’ personal and proprietary information.”
TikTok disputes this, and said Friday that it “has never shared user data with the Chinese government, nor censored content at its request.”
Why is this important to investors? According to Fox Business News, “Multiple American companies, including Microsoft, Google, and Facebook, have expressed interest in buying TikTok. President Trump has insisted that the U.S. Treasury get a cut of whatever deal is made, which could complicate the negotiations.”
Alphabet Inc. (GOOGL) sold off after reporting the first year-over-year revenue decline in company history on July 31st, settling into support at the 50-day moving average. The tech behemoth beat Q2 2020 top and bottom line estimates, posting a 29% drop in earnings to $10.13 per-share and a 1.7% revenue decline to a $38.2 billion. Quarterly performance suffered from weak advertising income and search activity, slowing 9.8% year-over-year, with small businesses forced to slash ad budgets in reaction to the COVID-19 pandemic.
Alphabet Notes Gradual Improvement
A company spokesman disclosed that ad revenue ‘gradually improved’ during the quarter but cautioned that it was too early to gauge the uptick’s resilience. Google Cloud revenue lifted an impressive 43% year-over-year, partially offsetting the impact of advertising losses, while monthly-based subscription services booked strong growth in user interaction. Alphabet also authorized an additional $28 billion in Class C stock buybacks.
CEO Sundar Pichai expressed caution about the 2021 outlook but noted “we saw the early signs of stabilization as users returned to commercial activity online.” He pointed to “good traction” in YouTube and Google Play subscriptions, with app and game downloads rising 35%, while the Cloud segment added an impressive list of new clients that include Deutsche Bank. Pichai also added that “customers are choosing Google Cloud to either lower their costs by improving operating efficiency, or to drive innovation.”
Wall Street And Technical Outlook
Wall Street consensus remains highly bullish despite the mediocre quarter, with a ‘Strong Buy’ rating based upon 30 ‘Buy’ and just 2 ‘Hold’ recommendations. No analysts are telling shareholders to take profits and move to the sidelines at this time. Current price targets range from a low of $1,500 to a street-high $1,990 while the stock closed Friday’s session $2 below the low target. This depressed placement suggests that Alphabet is over-valued at this time.
Alphabet failed a breakout above the February high on nearly three-times average daily volume after the release and is now wedged between resistance at 1,530 and moving average support at 1,460. A breakout through either end of this narrow trading range could gather steam, lifting the stock to an all-time high or starting the next leg of an intermediate correction that could reach 1,350 before attracting committed buying interest.
Amazon revenues were up 40% year-over-year while its earnings of $10.30 per share beat analyst estimates by $8.80.
Apple’s revenue and earnings were also higher than estimates. The company stated that the release of iPhone 12 will be postponed by several weeks and also announced a four-for-one stock split.
Alphabet’s earnings were less spectacular but the company comfortably beat estimates with revenue of $38.29 billion and earnings of $10.13 per share.
Facebook’s revenue was up almost 11% year-over-year despite the challenges brought by coronavirus pandemic while the company’s earnings of $1.80 per share easily beat analyst expectations.
Not surprisingly, all these stocks are gaining ground during the premarket trading session. The Big Tech was the main driver of the market’s upside move from the bottom reached in mid-March, so S&P 500 futures are also up in premarket trading.
Coronavirus Aid Package Negotiations Have Yielded No Deal Yet
While traders cheer the great results of big tech companies, their attention may later shift to coronavirus aid package negotiations.
At this point, there are no signs of progress. The $600 weekly unemployment benefits are about to expire, and failure to maintain the program in some form may put heavy pressure on consumer activity.
While there is always a chance of a last-minute deal, worries about the stimulus package may put some pressure on stocks later in the trading session.
No business is completely immune from a COVID-19 led economic slowdown and the ongoing global pandemic isn’t affecting all industries and its stocks in the same way, said Sammy Simnegar, portfolio manager in the equity division at Fidelity Investments.
So far, the deadly coronavirus has infected over 14 million people in 188 countries and killed more than 600 thousand, impacting day-to-day businesses worldwide.
“We shouldn’t think of how COVID-19 is affecting the stock market in monolithic terms because the opportunities and risks are very different at the company level… we try to identify the potential ‘winners’ and ‘losers’ in a post-pandemic world,” noted Fidelity’s Simnegar.
Fidelity’s Simnegar thinks Microsoft is resilient. Microsoft has two main businesses – its Office software suite and its Azure cloud-services operation. Because Office and Azure help customers to be more productive and competitive, Simnegar believes spending on these products is not likely to be hurt much by an economic slowdown, Fidelity noted.
Twenty-four analysts forecast the average price of Microsoft in 12 months at $219.11 with a high forecast of $260.00 and a low forecast of $190.00. The average price target represents an 8.00% increase from the last price of $202.88. From those 24, 23 analysts rated ‘Buy’, one rated ‘Hold’ and none rated ‘Sell’, according to Tipranks.
Morgan Stanley target price is $230 with a high of $290 under a bull scenario and $150 under the worst-case scenario. We think it is good to buy at the current level and target at least $230 as 50-day Moving Average and 100-200-day MACD Oscillator signals a strong buying opportunity.
Amazon is another name Simnegar thinks could continue to take market share during this uncertain time. The company’s logistical advantages allow it to ship essential items to Amazon Prime customers with same-day shipping, Fidelity noted.
Thirty-nine analysts forecast the average price of Amazon in 12 months at $2,991.34 with a high forecast of $3,700.00 and a low forecast of $1,987.00. The average price target represents a 0.99% increase from the last price of $2,961.97. From those 39, 36 analysts rated ‘Buy’, two rated ‘Hold’ and one rated ‘Sell’.
Morgan Stanley target price is $3,450 with a high of $4,200 under a bull scenario and $2,200 under the worst-case scenario. We think it is good to buy at the current level and target at least $3,400 as 50-day Moving Average and 100-200-day MACD Oscillator signals a strong buying opportunity.
Large media and entertainment holdings in the fund as of the end of May included Facebook and Google-parent company Alphabet. Simnegar thinks usage of these services has increased among many customers since they started sheltering at home due to COVID-19.
Thirty-four analysts forecast the average price of Facebook in 12 months at $257.04 with a high forecast of $300.00 and a low forecast of $185.00. The average price target represents a 6.20% increase from the last price of $242.03. From those 34, 29 analysts rated ‘Buy’, five rated ‘Hold’ and none rated ‘Sell’.
Morgan Stanley target price is $270 with a high of $325 under a bull scenario and $185 under the worst-case scenario. We also think it is good to buy at the current level and target at least $270 as 50-day Moving Average and 100-200-day MACD Oscillator signals a strong buying opportunity. Check this for Google stock forecast.
Other top holdings included credit card companies Visa and MasterCard, as well as Home Depot. The first two continued to ride the strong secular trend toward electronic payments, while Home Depot has benefited from customers who have spent more time in their homes and, therefore, have dedicated more money toward home improvement, Fidelity noted.
Alphabet’s Google and Deutsche Bank have announced to form a strategic partnership to provide the German lender access to cloud services and create innovation in technology-based financial products for clients.
This deal is a part of Deutsche Bank’s plan to make targeted investments in technology and innovation, utilising a budget of 13 billion euros by 2022. Both have signed a letter of intent and plan to sign a multi-year contract within the next few months.
Deutsche Bank anticipates the partnership to earn over 1 billion euros in accumulated earnings before income and tax over the next decade, reported by Reuters, citing a familiar source.
“For more than 150 years, Deutsche Bank has been an industry pioneer, with a strong record of innovation in the financial services sector,“ Sundar Pichai, CEO of Google and Alphabet said a press release. “We’re excited about our strategic partnership and the opportunity for Google Cloud to be helpful to Deutsche Bank and its clients as they grow their business and shape the future of the financial services industry.”
“The partnership with Google Cloud will be an important driver of our strategic transformation,” Christian Sewing, CEO, Deutsche Bank said a press release. “It demonstrates our determination to invest in our technology as our future is strongly linked to successful digitization. It is as much a revenue story as it is about costs.”
Google price target
Thirty-one analysts forecast the average price in 12 months at $1,527.66 with a high of $1,800.00 and a low of $1,237.00. The average price target represents a 1.87% increase from the last price of $1,499.65, according to Tipranks. From those 31, 29 analysts rated ‘Buy’, two analysts rated ‘Hold’ and none rated ‘Sell’.
Morgan Stanley target price is $1,400 with a high of $1,725 under a bull scenario and $960 under the worst-case scenario. Alphabet had its price target boosted by Canaccord Genuity from $1,550.00 to $1,700.00 and held a ‘Buy’ rating on the information services provider’s stock.
Robert W. Baird raised the price target from $1,500.00 to $1,650.00 and Goldman Sachs Group raised to $1,775.00 from $1,425.00 with a ‘Buy’ rating. The company price objective suggests a potential upside of over 23% from the company’s current price. BofA global research raised price objective to $1,610 from $1,420 and Citigroup raised it to $1600 from $1400.
“Google Websites growth is likely to rebound in 2021 as we believe there are several underappreciated products driven by mobile search, strong YouTube contribution, and continued innovation, such as Maps monetization,” Brian Nowak, equity analyst at Morgan Stanley noted in April.
“Continued expense discipline leads to operating leverage and upward revisions on EPS estimates,” the analyst added.
Google LLC, an American multinational technology company that specializes in internet-related services and products, is likely to post an advertising revenue drop of 5.3% as the impact of the coronavirus pandemic hits businesses and ad expenditures worldwide, according to eMarketer.
That fall for the world’s largest online advertising company is largely due to their heavy dependence on international tourism and travel advertisement on Google search, which has been affected by the COVID-19 pandemic. If eMarketer’s forecasts were realized, Google will post its first decline since the global financial crisis of 2008.
All industries have been affected by the coronavirus pandemic worldwide, pushing firms to cut their advertising expenditure as travel restrictions worsened demand.
According to eMarketer, Google’s U.S. ad revenue could have grown by nearly 13% without the recent pandemic. The research firm expects that Google’s competitors will also feel the heat. Facebook Inc, an American social media conglomerate based in Menlo Park, California, is forecast to grow its U.S. advertising revenue by about 5%, way less than 2019’s growth of over 25%.
The workers in a petition seen by Reuters expressed disappointment with Google for not joining the “millions who want to defang and defund” police departments. Protests have erupted in the U.S. and around the world over the killing of George Floyd, who died after a police officer knelt on his neck for minutes in Minneapolis last month.
“We should not be in the business of profiting from racist policing,” the Google petition has seen by Reuters noted.
Google stock outlook
Thirty-four analysts forecast the average price in 12 months at $1,493.03 with a high of $1,800.00 and a low of $1,237.00. The average price target represents a 2.92% increase from the last price of $1,450.66, according to Tipranks.
It is good to buy at the current level as all major technical indicators, including 20-day Moving Average and 100-200-day MACD Oscillator signals a buying opportunity. BofA global research raises price objective to $1,610 from $1,420 and Citigroup raises price target to $1600 from $1400.
Citigroup analysts in its May research report noted that “We now model 5% year-on-year growth in 2020, with full-year revenue reaching $169.6 billion, and we expect 20% year-on-year rebound in 2021, with full-year revenue reaching $203.4 billion.”
The bank further cut Alphabet Inc’s revenue estimates for the Q2 2020 to reflect the impact of the health crisis, which has hurt advertising revenues.
Zoom Video Communications (ZM) shares surged past $200 on June 1 to end the day with a 13% gain. The latest price action came as a result of the optimism surrounding the first-quarter earnings of the company which would be released after the market close on June 2.
Investors never really paid attention to Zoom before the pandemic, but the company emerged as the go-to video conferencing platform for stay-at-home professionals and students in the last few months. This virus-proof nature of the company has helped shares soar 200% in 2020 so far.
Even as shares continue to rise, some analysts are questioning the ability of Zoom to remain relevant in the long run as billion-dollar tech giants such as Facebook Inc. (FB) and Alphabet Inc. (GOOG) have unveiled plans to grab market share in the booming video conferencing industry.
Zoom Has A History Of Beating Estimates
Empirical evidence suggests that Zoom is likely to beat estimates for the first quarter. Since its IPO in April 2019, Zoom has beaten earnings and revenue estimates 100% of the time, and the same thing could happen later today as well. However, this is not a guarantee for a surge in the stock price. For instance, shares dropped by 10% following a strong earnings report in the previous quarter.
Latest Analyst Actions
Rosenblatt boosted its target price for Zoom from $95 to $150 on June 1, and the research firm now has the highest price target among Wall Street analysts for Zoom. However, even this revised target represents a downside of over 25% from the current market price of $204.
Even though daily active users have surged since March, some analysts have cast doubt over the ability of Zoom to monetize these users as the majority are non-paying subscribers who do not plan to pay for a video communication platform ever. The reopening of the economy, in any case, will lead to a decline in active users as well. Morgan Stanley analyst Meta Marshall recently wrote, “In order for us to get more positive on Zoom, we would need to see evidence that the monetization is higher than expected, meaning the installed base to sell additional services into is larger.”
Analysts unanimously agree that Zoom is overvalued from many perspectives.
Profit-Taking Seems To Be A Rational Decision
Zoom has many things going right for them, but at an EV/sales multiple of 80, shares are overvalued. As the global economy slowly returns to normalcy, Zoom will see a gradual decline in its daily active users, which would not be taken lightly by market participants. The company has a plethora of security and privacy issues to address as well. Booking profits now and waiting for a better opportunity seems to be the rational move.
In an abrupt and unprecedented manner, the world witnessed a mass halt to global activities due to the pandemic. Governments and central banks rushed in to intervene and support the global economy with unconventional measures to cushion the impact of the coronavirus on their economies and ease market strains.
As the virus spread quickly across the globe, the world forcing employers and employees to work remotely and rethink how to operate in a new ‘virtual reality’. Similarly, investors are faced with a new normal and are at an inflection point where there is a pressing need to reshape their investing strategies.
The oil price war is over for now and the OPEC+ group has also agreed to a historic production cut in early April; though . Aa little too late considering how the situation unfolded during the month. Oil demand took the biggest hit seen in years at a time where production was reaching new highs.
The world is running out of spare room to store the fast-expanding glut that the pandemic has created. The damage initially caused by the price war was irreversible during such pandemic. The lack of storage capacity triggered a big plunge in crude oil prices.
Crude oil futures markets were in chaos, triggered by the inability of investors or traders to take on physical deliveries of oil barrels. The storage problem is so dire that investors or traders holding oil contracts are willing to sell their contracts at a loss, causing crude oil futures to turn negative for the first time in history.
A situation of more sellers than buyers.
On April 2020, WTI futures for May delivery traded at around negative 37 for the first time ever, reflecting the urgency of sellers to offload their contracts to avoid taking physical deliveries given the pandemic-induced circumstances.
What to expect in the coming months?
There is no quick fix for rebalancing the oil market. In such volatile markets, it is hard to predict what will happen with the June contract as the storage capacity will remain a primary source of concern.
Oil future prices took another blow when one of the largest oil funds, the United States Oil (USO), filed an SEC filing and revised its investment in oil future contracts to concentrate on contracts that are further out in the future.
Crude oil prices have remained under heavy selling pressure throughout the month. The near-term outlook for the oil market remains grim but investors are hopeful some recovery will take place when:
Production cuts will slow down the speed at which storage tanks are being filled; and
Major economies will ease lockdowns and activities will gradually pick up.
In the last few days, WTI for June delivery lost more than 15% and is trading at $14.26 a barrel while Brent recovered from earlier losses for June settlement and is trading at $21.42 a barrel.
The International Monetary Fund (IMF) has predicted in its 2020 World Economic Outlook that the economic impact of the COVID-19 pandemic might result in the “worst recession since the Great Depression”. The IMF expects the world economy to contract by 3% in 2020 due to the magnitude and speed of the collapse in activity following the various forms of lockdown seen across the globe.
Attention was on the GDP figures of the world’s two largest economies!
Earlier this month, China reported a deep contraction of 6.8% in GDP in the first quarter. It was not surprising given that China exercised strict lockdown measures and put a halt to activities throughout most of the quarter.
China has slowly resumed activities since the beginning of the month as the worst of the pandemic appears to be over. Manufacturing and trade data has been more upbeat which has risen expectations of a gradual return to normal if China avoids another wave of the virus.
Investors will be ending the month with the US GDP report that will show the first wave of the impact of the pandemic. After more than a decade of expansion, the US economy was expected to contract by 4% with a steeper contraction in the second quarter.
As of writing, the preliminary figures show a worse-than-expected contraction of 4.8%, which is the first sharpest decline since the Great Recession.
The figures echoed the IMF warnings!
Earnings results were widely expected to highlight the pain inflicted by the coronavirus-induced crisis. Even though investors were expecting a tough earnings season with withdrawn forecasts, confusion and uncertainties about the 2020 outlook, the quarterly results are also meant to reveal how certain industries are affected by the virus and how those insulated from the virus are managing the pandemic.
Everything about the pandemic is unpredictable and therefore, companies in every sector are facing the challenges to communicate their guidance. Companies within certain sectors will perform worse than others.
The earnings season kickstarted with major US banks. As widely expected, banks like JP Morgan, Wells Fargo, Citigroup, Bank of America, Goldman Sachs and Morgan Stanley all reported a significant drop in profits. Overall, the banks made significant provisions for credit losses and saw major declines in asset management revenues.
Banks like Goldman Sachs and Morgan Stanley have flared better and their share price is currently up by 15% or more.
Our attention move to the big tech giants like Alphabet, Facebook and Netflix which have been reclassified to the communications sector in the last few years.
Netflix was among the first few to report its quarterly results. The company reported a $5.8B in revenue with a year-on-year growth of 27.6%. The number of subscribers came above estimates and more than double its target with 15.77 million paid subscribers. The substantial growth came in March when the lockdown and social distancing measures forced many more households to join the TV and movie-streaming service.
However, the company warned that revenue and growth might decline mostly due to probable lift of the confinement measures, a stronger US dollar that is impacting international revenue growth and the lack of high-quality content following the pause in production. Its share price reached a high of around $440, but as of writing, it is currently trading at $411.
Alphabet, Google’s parent company, issued its quarterly results after the bell on Tuesday. The company reported an increase of 13% in revenue for Q1 2020, compared to a 17% increase for the same quarter a year ago and earnings of $9.87 per share. Based on expectations, it was a miss on earnings. However, the company has performed well given the challenges and is cautiously optimistic tones for the second quarter. Alphabet’s share price rose by almost 9% on Wednesday.
Facebook – The social networking giant reported earnings of $4.9B or $17.10 per share for Q1 2020 compared to earnings of $2.43B or $0.85 per share in Q1 2019. The company doubled its earnings. Similarly to its peers, Facebook warned of the unprecedented uncertainty and withdrew its revenue guidance for the rest of the year. Its share price jumped by 6% to trade at $194.20.
Both Google and Facebook have seen a significant reduction in demand for advertising, but the companies still managed to stay massively profitable and adapt in a coronavirus-fueled environment.
Microsoft released strong results in the third quarter of its fiscal year 2020. Overall, COVID-19 has had a minimal net impact on total revenue. As people around the world shifted to work and learn from home, there was a significant increased in demand for Microsft’s Cloud business to support remote works and learning scenarios. Compared to the corresponding period of last fiscal year:
Revenue was $35.0 billion and increased 15%
Operating income was $13.0 billion and increased 25%
Net income was $10.8 billion and increased 22%
Diluted earnings per share were $1.40 and increased 23%
Microsoft did not only top revised COVID-19 estimates but also the earnings that were expected back in January before the coronavirus crisis.
All eyes will be on Apple Inc. which will report earnings on Thursday, April 30, 2020 after market close. Apple’s conference call to discuss second-quarter results will be held on the same say at 2:00 p.m. PT / 5:00 p.m. ET.
Unlike the consumer staples sector which includes companies that produce or sell essential products, consumer discretionary stocks are mostly companies that do not manufacture or sell essentials. The various forms of lockdowns have left many people without employment. For example, the US economy lost around 20 million jobs over the last few months. It took the US like a decade to add those jobs in the economy.
Amazon.com Inc has always stood out from the lot because of its status as a leading e-commerce retailer. Investors will closely watch its earnings reports for guidance. The company Amazon.com, Inc. will hold a conference call to discuss its first quarter 2020 financial results on April 30, 2020 at 2:30 p.m. PT/5:30 p.m. ET.
Worldwide sharp contractions in the manufacturing sectors, warnings of economic contraction and fears of a recession in the month of April have created panic and volatility in the financial markets.
A look at the All-Country World Index shows that global equities are poised for their biggest monthly gain since the Great Recession. The biggest driver is the unprecedented and unconventional actions by central banks combined with massive fiscal stimulus.
Global equities are surging even though economic data is painting a different picture.
Towards the end of the month, some positive developments on the novel coronavirus cases and the possibilities of earlier opening plans of certain major economies has driven markets higher. Mega-cap stocks like Microsoft, Amazon, Facebook and Google have also contributed to lifting sentiment and drove the rally while smaller-cap companies are bearing the brunt of the pandemic.
The Reopening Plans
There is still hope for the economy despite the tough circumstances. V-shaped or U-Shaped Recovery? New infections have slowed down but there is still no vaccine and economies are at risk of a new wave of infection.
A vaccine could have increased expectations of a swift recovery like a V-shaped immediate recovery in the third quarter or a U-shaped recovery with stability more towards the second half of the year.
However, at the moment, governments are easing lockdown restrictions and investors will be back to a New Normal to replace the current “normal”. The economy is trapped in an unusual type of recession created by the novel coronavirus.
The roadmap to recovery will be progressive and dependent on the governments approaches towards easing lockdowns. It will be different across the globe depending on how governments feel about the situation and the risk of a second wave of the virus.
The path to recovery will be a learning process given the unknown territory!
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First we had the FAANGs – Facebook, Apple, Amazon, Netflix, and Google. With Facebook and Netflix out of favor and Microsoft returning to good graces, we now have MAGA. Not the MAGA promoted by President Trump, but Microsoft, Apple, Google, Amazon.
Amid the broader stock market sell-off, these four tech giants aren’t doing so well, having erased $1.3 trillion in value since their February all-time closing highs.
During the current stock market rout, Microsoft has taken the biggest hit, down $405.2 billion. Apple has lost around $371.8, billion, while Alphabet (Google’s Parent) is down $311.1 billion. Amazon has dropped $239.4 billion.
Of the four tech titans, only Apple and Microsoft remain valued at over $1 trillion.
While the benchmark S&P 500 Index and blue chip Dow Jones Industrial Average have fallen more than 20% from their record highs, thereby entering a bear market, these four stocks have also made similar moves. Amazon, the best performer in the bunch, is down 20.8%. Apple is off its high by 25.4%, while Microsoft has plunged 26.9%. Alphabet (Google) is the worst performer, plummeting 29.3%.
Microsoft hasn’t been in the news lately, probably because it doesn’t own any stores. However, it was one of the first companies to warn about the coronavirus’ impact on its bottom-line. Three weeks ago Microsoft said it doesn’t expect the quarterly revenue guidance it previously provided for the segment that includes Windows.
Even before Microsoft disclosed trouble, Apple disclosed that it did not expect to reach its own quarterly revenue forecast because of lower iPhone supply globally and lower Chinese demand as a result of the coronavirus outbreak. On March 14, Apple said it was closing all stores outside of China until March 27 to reduce the spread of the virus.
Amazon warned it’s experiencing Prime delivery delays and running out of stock of popular household items amid the coronavirus outbreak.
The issues are a result of a “dramatic increase in the rate that people re shopping online,” Amazon said in a blog post that was updated Saturday. Some popular brands and items in the “household staples” categories were out of stock, while Amazon said some of its “delivery promises are longer than usual.” The issue markets a rare disruption to Amazon’s signature two-day and one-day Prime delivery service.
Alphabet’s Verily coronavirus site screening website for Silicon Valley residents went live on Sunday evening. By Monday it appeared to be overloaded and cannot currently offer appointments for screening, according to the website. The site, build by Google sister-company Verily, is supposed to offer people who live in San Mateo or Santa Clara counties and think they are experiencing COVID-19 symptoms a way to schedule a test.
Near-Term Outlook for MAGA
All four MAGA stocks are highly correlated with the benchmark S&P 500 Index, but given their different business models, it looks as if Amazon should outshine the rest. Consumers are still going to need products and if there are mass quarantines in the United States, these consumers will have to rely on the internet to place their orders.
Google is likely to be the worst performer in the bunch because it relies on small business advertising, which is expected to decline during the coronavirus crisis.
It turns out that yes! At least to some extent. Let’s start with the R-word index created by The Economist. It counts how many stories in the The Washington Post and The New York Times are using the word “recession” in a quarter. The idea behind the indicator is that economic downturn coincides with a surge in the frequency of the that scary world starting with R. The index surges when recessions are on the minds of people and the financial journalists who write articles about them. And, indeed, it has been pretty good at spotting economic turning points over the past three decades. As one see in the figure below, the R-word index signaled the start of recessions in America in 1990, 2001, and 2007.
Chart 1: The Economist’s R-word Index from Q1 1990 to Q4 2018.
Is it perfect indicator? Of course not! The R-word index is great, because it is instantly available. However, it emits recessionary signal just before the crises, so it is not the best leading indicator. And it sent a false warning in 1998. Moreover, the size of the spike in the early 1990s was much higher than during the previous recessions, although they were much more severe.
Another problem is that the gauge sometimes indicates recessions after they officially end, as the journalists go on babbling about the slump even when it’s over. This is the main limitation of the index: it does not measure the real economic activity but its perception in just two newspapers (however, Mark Doms and Norman Morin, in a paper “Consumer Sentiment, the Economy, and the News Media”, elaborated of The Economist’s R-word index, constructing indexes reflecting the number of articles about recession from 30 large newspapers, and they reached similar conclusions). If these two match each other, that’s perfect. But the perception can be distorted. Remember that the press loves to shock, as fear sells great.
Currently, the index is not flashing danger. However, the measure is on the rise. When the number surpasses 1,000, you might start to worry, having in mind all its shortcomings. You could then consider buying gold and sit comfortably in a chair. And admire the glow of bullion, instead of counting words in the newspaper.
We all know that the media cannot be trusted, right? So maybe instead of relying on financial journalists, we should simply ask Uncle Google? After all, instead of going to the doctor, you ask the Uncle how serious your symptoms are. Google is the dominant search engine, so its search term usage can provide a snapshot of current interests in economic issues, including recession. The idea is simple: if many people are entering the same economic search terms in the same period, this could reflect changing conditions, such as the onset of a recession.
So, let’s look at the chart below, which shows the gold prices and the popularity of query for “recession” in the United States from January 2004 to June 2019.
Chart 2: Searches in Google for “Recession” in the US from January 2004 to June 2019 (January 2008 = 100).
As one can see, the term gained the maximum popularity in January 2008, shortly after the official start of the Great Recession. Since then, the popularity receded but soared again after the collapse of the Lehman Brothers. Until recently, the index remained at a low level, but it surged the end of 2018. Currently (as of mid-June), it stays at 20, a level seen just before the last financial crisis. However, it has been in a downward trend in 2019, so although the jump from the end of the previous year is disturbing, there is no reason to panic yet. This indicator does not suggest an imminent U.S. recession.
However, although the index is timely, investors should remember its limitations. First of all, Google Trends data are available only from January 2004, so it covers only one economic crisis. Second, the spike in searches for “recession” occurred just when the US economy fell officially into recession, so it is not the best leading indicator.
What does it all mean for the gold market? Well, both The Economist’s R-word Index and the Google’s Recession Index have increased substantially from their through in mid-2017, which is worrisome and could spur some safe-haven demand for gold. However, both indices do not flash recessionary signals yet. Gold bulls will have to wait to unfold fully their wings, pardon, hooves.
All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits’ associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski’s, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.