QQQ: The Downside Risks on the Nasdaq Seem Exaggerated

The performance of the Nasdaq now encompasses a higher degree of volatility as seen by the 5.5 to 9% corrections in the Invesco QQQ Trust (QQQ) which has now become the new normal in a macroeconomic environment where hawkish Fed hiking interest rates is seen as being unfavorable to high-valued and unprofitable tech stocks.

Source: Initial chart from Trading View

For investors, QQQ tracks the Nasdaq-100 Index which features Apple (APPL), Alphabet A (GOOGL), Alphabet C (GOOG), Microsoft (MSFT), NVIDIA (NVDA), Meta labs (FB), Amazon (AMZN), Tesla (TSLA), Adobe (ADBE) and PayPal (PYPL). These are the main holdings out of a total of 102.

Assessing the risks

There are certainly risks in 2022 in the context of being invested in tech equities, but, I would like to bring to the attention of investors that despite all the volatility, QQQ has gained 6%, and this shows that the market’s repositioning (amid the rotation from growth to value names) does not seem commensurate with the forthcoming pace at which interest rates will increase.

Exploring further, trades are no longer crowded as in 2021 as people look for income or other asset classes to diversify. However, this diversification away from tech seems not to have hit QQQ’s main holdings which constitute 52.73% of the portfolio. As per my observation, this has been the case from April through December this year when most of the market gains were just from AAPL, MSFT, NVDA, TSLA, and GOOGL.

Source: Ycharts.com

Given the fact that the rotation has lacked in breadth, I see the corrections in tech as a rather muted market reaction, and this also prompts me to discard fears that tech stocks will suffer in the same way as during the bursting of the Internet bubble back in 1999-2000. At that time, in the first phase of the bear market, the large-caps names were doing fine but a large percentage of Nasdaq’s other components crashed by more than 50%. Ultimately, all the components crashed.

However, that was a completely different Nasdaq with the top stocks of the time being Cisco (CSCO) followed by Microsoft then Intel (INTC), or from the networking, software and semiconductor sectors respectively. Today, it is more about social media, online advertisement, internet marketplaces, electric cars, the cloud, smartphones, and virtual reality. In short, tech is now fully integrated into all spheres of economic and social life compared to twenty-two years ago.

Considering the inflation factor

Moderating slightly, QQQ’s other holdings seem to be impacted as investors become more selective, putting more emphasis on quality (free-cash-flow, balance-sheet, economic moat, etc) and valuations. Still, here also, rising inflation, currently at above 7% compared to 3.75% in 1999-2000 could prove to be more difficult for value stocks like banks as their customers suffer from rising prices and are faced with the rising cost of doing business. For this matter, as shown in the chart below, Bank of America (BAC) and Berkshire (BRK.B) saw a more pronounced dip in their total return level in August 2008 than Apple or Microsoft when inflation was above 5%.

https://static.seekingalpha.com/uploads/2022/1/14/49663886-16421719831560977.png

Source: Ycharts.com

Industrials are also likely to suffer from soaring raw material and labor costs. As for tech, they should better withstand high inflation with their ability to make use of software, AI, and automation tools more rapidly than companies from other sectors of the economy. These tools enable them to reduce operating costs and better circumvent wage inflation. Examples are FinTechs like PayPal’s (one of QQQ’s current underperformers) ability to reduce money transfer fees for customers compared to traditional banks and companies making use of cloud-based collaboration instead of having to invest in costly infrastructure.

Tech should continue to outperform as digital transformation enablers

Furthermore, with relatively less dependency on physical interactions caused by variant-related uncertainty, tech stocks are less likely to see a reduction in profitability. Here, some will note that Apple’s revenue share from its App Store ecosystem is increasing more rapidly than for devices and Tesla is considered as an internet-of-cars company.

Historically, as shown in the chart below, big tech’s gross profit margins have either increased or remained constant during the last five years, which include 2021, a year characterized by rapidly rising inflation.

https://static.seekingalpha.com/uploads/2022/1/14/49663886-16421723117351067.png

Source: Ycharts.com

Thus, inflationary pressures grappling the economy as from 2022 is likely to put valuations on the backstage, with tech, especially the more profitable ones, likely to continue seeing positive returns. This said tech remains highly dependent on semiconductors, a sector that needs to be watched closely for some short term pain when some of the big names report earnings on the last week of January. Finally, looking at the performance of the Nasdaq in 2020 and 2021 when it gained 43.64% and 21.39% respectively, even a 10-12% gain in 2022 would put it in positive territory.

Disclosure: I am long Apple. This is an investment thesis and is intended for informational purposes. Investors are kindly requested to do additional research before investing.

For High-Growth Tech Lovers, the Trend Indicates That it is Time to Consider Value-Oriented ETFs

Also, subtracting 2% due to “positive sentiment” induced by the Santa Claus rally, it can be inferred that the index actually fell by more than 8%. At the same time, a look at the S&P 500 (in orange) which holds more than 28% of technology assets exhibits a more neutral position, while the Dow Jones Industrial average (in blue), up by 1.52% indicates that the more cyclical names are being prioritized by investors, as potential beneficiaries of the economic recovery.

https://static.seekingalpha.com/uploads/2022/1/9/49663886-16417501192287376.png

Source: Trading View

Going further in the past, the weakness in tech started from the second quarter of 2021 when it became evident that the Fed was adopting a more hawkish tone and bond yields were on the rise. However, the adverse market conditions for technology were masked by the gains from these six most popular stocks, namely, Tesla (TSLA), Apple (AAPL), Microsoft (MSFT), NVIDIA (NVDA), Meta Labs (FB), and Google (GOOGL). Now, with the Nasdaq bearing a P/E ratio of 28, tech valuations remain high compared to the broader market, and the weakness in richly-valued high-growth names in the technology sector should continue, perhaps in the same way as during the Internet bubble of 1999-2000.

Growth to value rotation

Now, moving away from high-growth tech names to lower-valued cyclical names reminds us that the “rotation from growth to value”, which some analysts were invoking in 2021, has gained momentum. For investors, rapidly growing tech stocks with their high R&D and sales expenses primarily focus on growth while value names are more conservative in spending and lay more emphasis on profitability.

To further verify whether the growth to value shift is really happening, I make a comparison between growth and value ETFs as per the chart below. In this case, the iShares Edge MSCI USA Value Factor ETF (VLUE) and the Vanguard Value ETF (VTV) are both up by 5.6% and 3.9% respectively, while the Schwab U.S. Large-Cap Growth ETF (SCHG) and the Technology Select Sector SPDR ETF (XLK) are down by more than 3% each. This one-month performance confirms that value is up, while growth/technology is down.

https://static.seekingalpha.com/uploads/2022/1/9/49663886-16417501193779671.png

Source: Trading View

Looking ahead, in view of the uncertainty associated with Covid variants, supply chain issues, and inflationary concerns in the first half of 2022, there is no guarantee that the current trend favoring value will continue, but, at the same time, we cannot remain insensible to the new market regime. Moreover, for those who have been used to investing in growth made relatively easy due to the momentum induced by the mighty Nasdaq, it may prove difficult to screen the market for high-quality value stocks with appropriate free-cash-flow, balance-sheet, and valuations metrics.

The value-oriented ETF rationale

Hence, it is precisely for these tech investors that investing in value-oriented ETFs where the fund managers select the best stocks, makes sense.

In this respect, VTV with an expense ratio of 0.04% and paying dividends at a yield of 2.15% holds mostly Financials (22%), Healthcare (18.5%), and Industrials (14%) stocks as part of total assets. Finally, for tech lovers, better performing VLUE, with 30.85% of IT exposure, and paying a 2.41% dividend yield at an expense ratio of 0.15% is a better choice.

Disclosure: I am long XLK.

 

SPYD: A High Dividend ETF to Also Benefit From Return to Office

This level of change was unprecedented in the 200 years old history of industrialization and resulted in millions of square feet of prime office space suddenly becoming useless as cohorts transformed working habits in order to reduce Covid infection risks. Going a step further, government departments, as well as companies from Microsoft (MSFT) to Google (GOOG), extended the time period their employees could work remotely to more of a hybrid mode due to Covid variants.

WFH, Vaccination Efficiency and REITs

However, while WFH has helped to reduce costs, its contribution to productivity remains debatable, and with higher vaccination rates in 2022, the return to office momentum could be accelerated. This should in turn benefit office REITs or Real Estate Investment Trusts.

With 16.81% real estate exposure, the SPDR S&P 500 (SPYD), is a high dividend yield ETF. It also includes 19% of financials, a positive in a rising rate environment which should be favorable to banks. On the other hand, the ETF also has some exposure to IT, which depending on the valuations of the individual holdings, is currently suffering from a rotation away from technology names.

However, the fact that this exposure is limited to 5.75% still makes SPYD a more appealing choice when compared to the Vanguard High Dividend Yield ETF (VYM), for example, which includes 8% of technology stocks as part of its holdings. Additionally, the Vanguard ETF does not include any REIT stock as part of holdings.

https://static.seekingalpha.com/uploads/2022/1/9/49663886-16417204616864512.png
Source: ssga.com

I also like the SPDR ETF as it pays higher dividends, at a yield of 3.54% compared to its peer’s 2.74%.

Best REIT ETFs

Scanning the industry, in order to fully benefit from a return to office one can also choose the SPDR Dow Jones REIT ETF (RWR) or the highly popular Vanguard Real Estate ETF (VNQ), but, given future uncertainty as to the possibility of Covid variants impacting a full resumption of office work together with the diversification rationale, it is better to opt for an ETF with partial exposure to REITs like SPY. For this purpose, it follows the S&P 500 High Dividend Index and carries an expense ratio of just 0.07%.

In addition to providing higher quarterly income, SPYD, with a gain of 28.21%, has outperformed the broader market (S&P 500) by more than 5% in the last year. This outperformance has even been more pronounced during the last one month at more than 7% (6.82% minus -0.24%) as shown in the red and blue charts below, and should continue as investors pour more money on the cyclical sectors like Consumer Staples and Energy to bank on the economic recovery, at the expense of tech.

https://static.seekingalpha.com/uploads/2022/1/9/49663886-16417216689965916.png
Source: Trading View

To further make my point about SPYD benefiting from REITs and being less exposed to tech is its superior one-month performance compared to VYM’s 4.28% as shown in the orange chart above.

Finally, SPYD forms part of a list of ten high-yield ETFs for income-minded investors computed by Kiplinger, aiming for balancing risks and rewards in the quest for better-than-average yields.

Disclosure: I am long SPYD.

Samsung Set to Integrate NFTs into its TV Technology in 2022

Days before the Consumer Electronics Show (CES) 2022, the South Korean tech giant has officially announced its NFT aggregation platform. The platform will be supported by its exclusive smart TV launch. This platform will allow users to browse NFTs for sales, with the option of purchasing them via television.

Support for Digital Artwork on MICRO LED, Neo QLED, and The Frame

On Samsung smart TVs, the NFT aggregation platform fetches NFTs from various marketplaces, and users will be able to preview these NFTs, read about its creator, and learn about the digital art tokens. According to the company, users can browse and trade NFTs through Samsung’s MicroLed, Neo QLED, and The Frame models.

According to a company’s press release, with demand for NFTs on the rise, companies have never been more crucial to offer customers a solution to the fragmented landscape of viewing and purchasing.

Samsung is introducing the world’s first TV screen-based NFT explorer and marketplace aggregator in 2022. The platform is a game-changing platform that allows users to browse, buy, and display their favorite artists all in one place.

In the cryptocurrency world, NFTs are setting new records. So far, people have spent more than $9 billion on NFT sales. According to the Chainalysis 2021 NFT market report, approximately $26.9 billion in NFTs were traded across all NFT marketplaces, indicating the market’s growing dominance.

Creators Will Now Share Their Art with the World

NFTs are digital assets that have been around for a long time, but crypto and crypto art has gotten a new lease on life in recent months.

NFTs enable people to buy and sell ownership of one-of-a-kind digital items in cryptocurrencies while keeping track of who owns them on the blockchain. Technically, these can contain anything digital, such as drawings, artworks, tweets, or even video games.

Creators will share their work with the rest of the world via the Samsung NFT platform. They will allow potential buyers to view and learn about an NFT’s history and blockchain metadata before purchasing it. The company will release more information about the NFT platform in the coming months.

The Consumer Electronics Show (CES) 2022

A note should be made that the announcement comes ahead of the Consumer Electronics Show (CES) 2022 that will take place in Las Vegas from January 5. The company will also introduce its newest TV models at Consumer Electronics Show 2022 to the world.

They promise an improved picture and sound quality, a more comprehensive range of screen sizes, customizable accessories, and an enhanced interface.

However, due to the increasing cases of coronavirus variant Omicron, several tech giants such as Google, Amazon, Microsoft, and Lenovo will not be physically present at the CES 2022.

Sector Themes In Play In The Markets For 2022

Years like 2021 saw a solid broad-based performance in many stock market sectors. Relatively simple approaches such as Indexing and Sector Rotation did well. But with macro changes in play and many uncertainties for 2022, we may very well see broad indexes underperforming while individual sectors dominated by a few stocks really shine.

Dips will continue to be bought unless something significant changes. But let’s not forget that we’re long overdue for a substantial correction. Significant risk catalysts are:

  • Fed actions.
  • International conflicts (i.e., Russia and China).
  • Pandemic developments that are not currently known.

There’s always the risk of the unknown – the literal definition of a “Black Swan” event. We shouldn’t get too complacent, knowing that we may need to get defensive to protect capital suddenly. When it’s time to be defensive, let’s not forget that CASH IS A POSITION!

Sector theme DRIVERS FOR 2022

Many uncertainties about Covid and the lingering effects on the economy remain. Inflation has roared back to 30-year highs. Strong employment numbers and consumer spending are fueling significant growth in corporate earnings. We also have a shift in bias at the Fed on interest rates and quantitative easing. These are the “knowns” and are theoretically priced in.

For these reasons and more, we should expect more of a “Stockpicker’s Market” in 2022. Certain sectors will do well and weather corrections better than the broader markets.

Even short-term traders can gain an edge by paying attention to what sectors are strongest. Traders tend to benefit most from playing the strongest stocks in the strongest sectors for bullish trades and choosing the weakest stocks in weaker sectors for bearish trades. That “tailwind” can make a significant difference in results.

Let’s look at some sector themes and individual names to keep an eye on in 2022.

ECONOMIC NORMALIZATION

A long-anticipated return to a “normal” economy will continue to be a theme — we just don’t know if that will be Post-Covid or Co-Covid. Or when. Air travel, theme parks, hotels, cruise lines, etc., have all suffered in the persistent Pandemic. What does seem to be changing is the idea of a “new normal” where virus variants may be with us for years to come. We will adjust socially and economically to that for the foreseeable future. DAL, UAL, LUV, AAL are airlines to watch, and the JETS ETF may be a good way to play a general recovery in this sector.

5G INTERNET

The much-hyped rollout of 5G network technology had its share of setbacks and technology disappointments. But 2022 should see the 5G deployment start to take off as technical issues are worked out, and the promise of widespread coverage with transformational performance becomes real. In the background supplying the 5G infrastructure are AMD, QCOM, ADI, MRVL, AMT, XLNX, and KEYS. Along with infrastructure and testing companies, shares of major carriers T, TMUS, and VZ languished for much of the second half of 2021 and looked poised for recovery in the coming year.

ARTIFICIAL INTELLIGENCE

In all its various forms (including autonomous vehicles), AI will remain a developing trend. Big players in the space to watch include MSFT, AMAT, GOOGL, NVDA, AAPL, and QCOM.

EVs and AUTONOMOUS VEHICLES

Electric Vehicles (EVs) are nearing an inflection point where widespread adoption is poised to take off. Technology and cost competitiveness has improved where some EVs will reach price parity with their traditional internal combustion counterparts.

While there are many smaller players in the EV space, automotive stalwarts F, GM, and TM are investing very heavily. TSLA has been grabbing the headlines, but many others want to stake out their territory in the space, including whole tiers of manufacturers and infrastructure enablers like WKHS, XPEV, NKLA, and CHPT.

MATERIALS and MINING

Gold, silver, and related miners underperformed for much of 2021 and now look poised for a recovery year as inflation, and monetary concerns grow. GLD, SLV, GDX, GDXJ, SIL, SILJ look good as both longer and mid-term plays. Metals and miners may get hit initially with a significant downturn in stocks but could ultimately demonstrate their safe-haven potential.

Specific to the growth in EVs, battery technology, etc., copper, lithium, and related basic materials should see stronger demand ahead. FCX looks particularly interesting as a dual play on gold and copper. LIT may be a good ETF play on lithium battery technology.

SEMICONDUCTORS

The market for chips is primed for exponential growth. EV’s have about ten times the number of specialty semiconductors as conventional vehicles. AI, crypto, 5G, mobile devices, and ubiquitous computing should drive growth in the semiconductor sector for some time to come.

REAL ESTATE

Real Estate and Homebuilders should continue to do well while employment numbers remain strong and if interest rates don’t rise too quickly. The inventory shortage in most real estate markets will likely persist well into the new year.

Storage REITs like PSA, LSI, and CUBE have been big winners in the Covid economy and still have room to run.

SUMMARY

Many sectors still look bullish after gains in 2021. But there are “storm clouds” on the horizon, and we must not take future performance for granted.

Lastly, one of the simplest ways to assess how sectors are measuring up is to watch the charts for the S&P SPDR series sector ETFs and a few others. Here are some notable ones to watch:

https://www.thetechnicaltraders.com/wp-content/uploads/2021/12/Dec-31-article.png

These can give us a good starting place to look for leading stocks in winning sectors as the year unfolds.

Let’s remain vigilant for possible market corrections and may the wind be at our backs!

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MANAMA Stocks Should Continue to Empower SPY, VOO and QQQ till 2024 and Beyond

These are Microsoft (MSFT), Apple (AAPL), NVDIA (NVDA), Amazon (AMZN), Meta Platforms (FB) and Alphabet (GOOG) which I have aggregated under the acronym of MANAMA. Three of the ETFs which own them are the SPDR S&P 500 Trust ETF (SPY), Invesco QQQ ETF (QQQ) and the Vanguard S&P 500 ETF (VOO).

https://static.seekingalpha.com/uploads/2021/12/30/49663886-16408833269688747.png

Source: Prepared by author

The funds hold these mega-cap tech stocks as part of their top holdings, with the exact percentage held out of total assets held varying and depending on the objectives of the individual fund managers. Looking at the last one-year period, the three have delivered performances of above 28%, with the SPY and VOO gaining 28.54% and 28.59% respectively, slightly outperforming QQQ at 28.31%. Now, the fact that SPY and VOO, despite holding companies in the non-tech sector like pharmaceuticals and financials have managed to deliver such gains normally associated with QQQ would tend to show that in addition to their individual portfolio specifications, they have also benefited from the “MANAMA factor”.

https://static.seekingalpha.com/uploads/2021/12/30/49663886-16408833273404047.png

Source: Trading View

For this matter, both SPY and VOO are passive ETFs with expense ratios of just 0.09% and 0.03% respectively, far below the tech-heavy QQQ’s 0.20%.

The case for technology

One certainty is that tech has been growing since man invented fire and tools, and will continue to grow as long as he inhabits the earth. Starting with Microsoft, its current CEO Satya Nadella has successfully transformed his company from a traditional software company to one whose revenues are based on the cloud, and this, despite embracing the SaaS (software as a service) model after Amazon. The latter, known primarily for its online marketplace, continues to grow at a frantic pace. After having been the first to market the commoditized cloud services since 2006, Jeff Bezos’ company now aims to provide private 5G services with its usual “as-a-service” approach as well as launch its own constellation of communications satellites.

Now, the market size for 5G and related services should grow from $53 billion in 2020 to $249 billion by 2026, whereas for cloud computing, it should reach  947 billion from 445 billion in 2021. This rapidly expanding market should also benefit Google, with its AI focus.

As for Facebook, its name change into Meta Labs marks a shift in its CEO’s vision of the future, namely from a social networking company to one which is increasingly oriented towards virtual reality. Also, knowing Mark Zuckerberg failed attempt to launch a cryptocurrency sometime back, it is highly probable that FB will most likely acquire one of these blockchain-powered metaverse projects like Sandbox or Decentraland where goods ranging from virtual land to digital art are being exchanged for millions of dollars.

As for Apple, with its smartphone and forthcoming augmented reality devices, it should play a key role in the transition from the metaverse to the physical world and vice versa.

Metaverse demand and huge addressable markets

Now, in order to build smartphones, 5G equipment, electric cars, or cloud, you need powerful chips, produced by the likes of NVIDIA. The company through its GPU-based processors has a niche position among gamers as well as Bitcoin miners. This is a company that has been very innovative in the type of chips it produces and is expected to benefit significantly from metaverse demands as evidenced by its share price surging higher as shown in green (in the chart below), with the start of the surge coinciding with Facebook’s change of name.

https://static.seekingalpha.com/uploads/2021/12/30/49663886-16408833275020514.png

Source: Trading View

In this respect, the global metaverse revenue opportunity could approach $800 billion in 2024 compared to about $500 billion in 2020, out of which $400 billion would be made of online games and the rest by opportunities in live entertainment and social media. Interestingly, one company which should benefit as people’s purchasing habits evolve into more “experiential events” is Amazon, which only saw only a 3.79% appreciation this year.

Valuations and key takeaways

Consequently, with addressable markets in their areas of operations expanding rapidly and big techs having the cash to make acquisitions to power on with growth, I see share prices continuing to rise well into 2024. As for valuations, I foresee a 25% upside for SPY, VOO, and QQQ by the end of next year, based on the forecast of analysts at Wedbush Securities, according to whom the NASDAQ will reach 19,000 by the end of 2022, on grounds that mega-caps benefiting from continued tech spending as there is more focus on digital platforms, both for work and entertainment purposes.

Finally, the first part of 2022 should be volatile for stocks in general due to inflationary pressures and this is likely to impact valuations, but I am positive on tech generally, more specifically on MANAMA’s stocks as they take on the task of converging our physical and virtual worlds through an evolution as to the way we interact socially, purchase goods, work and entertain ourselves.

 

Antitrust Battle Against GAFAM

Powerful big technology companies such as Google, Apple, Facebook, Amazon, and Microsoft have significant market share and influence on the economy. The five biggest tech companies make up 22.9% of the S&P 500. In recent years, the dominance of big tech stocks has resulted in large gains to shareholders. Considering the antitrust battle that began to take hold in July 2020, along with the projected rise in interest rates, share trading may be on the decline. The antitrust topic’s central question is to what extent do these companies wield too much power and hone monopolistic practices in the marketplace?

Big tech companies tend to control all modern technology components, which keeps other firms out of the marketplace. These anti-competitive practices manifest themself in social media, e-commerce, internet search, cloud services, and app stores. Antitrust laws provide an equal playing field for businesses that operate in a similar industry while limiting the power of big companies over their competition.

Core U.S. antitrust law was created by three pieces of legislation: the Sherman Anti-Trust Act of 1890, the Federal Trade Commission Act, and the Clayton Antitrust Act. The tech sector is now seeing the greatest antitrust test since 1998, and it is unclear how stock trading will respond to it.

Europe vs GAFAM: How the Battle Against Big Tech Unfolded So Far

Alt Text: The digital giants are regularly criticised for dominating the market by elbowing out rivals

https://gadgets.ndtv.com/internet/features/google-apple-facebook-amazon-microsoft-big-tech-curb-battle-europe-hearing-antitrust-2605654

Google and App Monetization

Alphabet, Google’s parent (GOOG), faces three pending lawsuits. The most recent one might make it harder for it to monetize some of its apps. However, antitrust legislation is unlikely to hurt the company and improve stock trading. Alphabet’s primary business is Google, which accounts for nearly all the company’s revenue. Therefore, Alphabet could unlock revenue from its non-Google businesses if antitrust pressure increases. Alphabet could also split its businesses and give stockholders shares of new companies.

Amazon and E-commerce

Amazon (AMZN) has attracted significant regulatory investigations since 2020. As recently as in September 2021, Washington, D.C., expanded its antitrust lawsuit against Amazon to challenge the online retailer’s agreements with wholesalers, or first-party sellers, in addition to third-party sellers. Amazon could potentially be broken down into smaller businesses. These might include online retail, cloud services (Amazon Web Services), transport (Flex and trucking), and media (Prime Video and MGM).

Despite this, it has been argued that Amazon will continue to trade higher. If Amazon split and the smaller companies became dividend-paying stocks, then investors would still be attracted to it and benefit more than if Amazon remained as one company.

Facebook and Social Media

Meta Platforms, formerly known as Facebook (FB), was sued in 2020 for buying up competitors Instagram and Whatsapp. It was argued that Facebook had a “personal social networking” monopoly. However, recently, a federal judge shut down the antitrust case against Facebook, who said there is no universally agreed-upon definition of personal social networking service. The result was a devastating blow to antitrust enforcement. It caused the Facebook stock to jump and its market share to exceed $1 trillion.

Apple and Vertical Integration

Apple (AAPL) currently maintains vertical integration over its technology. For instance, Apple controls the iPhone itself, the operating system, and the app store. It is even considered a “warm and fuzzy monopolist” since it does not have the same negative perception as the rest of big tech. Apple has blocked out competition from entering the market. Consumers see that Apple’s exclusive control is a threat to the economy as other business investment is pushed out. This might be harmful to share trading.

Apple still faces antitrust action in the coming years, which could impact the company’s share trading. Namely, several countries have already proposed laws targeting App Store practices or are investigating potential violations of their competition rules. These include but are not limited to the European Union, the United Kingdom, Germany, the Netherlands, Japan, South Korea, and Australia. While these actions can make Apple pay fines, it will likely not cause Apple to overhaul its practices. On December 8th, Apple won its appeal to delay implementing the court order that would allow apps to link out to other payment methods. There is a lot to be done to force big tech companies like Apple to change.

Microsoft

Despite being the world’s dominant operating system and second in cloud market share behind Amazon, unlike the rest of big tech, Microsoft (MSFT) has not engaged in antitrust practices. Therefore, the legislation has not impacted share trading, and the stock has continued to perform well.

The Bottom Line

Despite widespread and global anti-regulation enforcement efforts, there is still a long way to go to reign in the power of big tech companies. These companies are dealing with pending lawsuits and will continue to face lawsuits in the coming years. These companies will likely find a way to continue to be the most potent companies even if they lose cases. They will still find ways to be profitable and incentivize stock traders to invest in their company.

 

META: Specifically for Metaverse Exposure but Not Yet Convincing

After Mark Zuckerberg renamed Facebook to Meta Platforms (FB), the metaverse has suddenly become a hot topic with search interest on Google Trends peaking at a value of 100, signifying immense popularity. However, there is currently no universally accepted definition of the metaverse apart from some key words like “virtual reality”, or “advanced Internet”. Learning from Blockchain’s world where there are already metaverse projects like Sandbox where land can be exchanged against payments of millions of dollars, it could be defined as a virtual universe with a functional economy.

Of course, this definition is not straightforward and to be frank, no one knows exactly what shape the metaverse will take. But, for investors willing to invest hard-earned money in ETFs like the Roundhill Ball Metaverse ETF (META), it is important to understand which sectors are most likely to benefit. Some use cases are already being proposed such as attending a virtual concert, taking an online trip or creating digital art in the form of blockchain-powered NFTs or Nun Fungible Tokens.

Now, these applications will require a lot of computing power due to increased utilization of artificial intelligence and augmented reality (“AR”). At the same time, for communication purposes, there will be requirement for next generation Wi-Fi and 5G. Roundhill Investments does list some sectors like Compute, Networking, Virtual platforms, Interchange standards, etc from where they choose companies to be included in their fund, but for illustration purposes, I provide a chart which I recently used it in an article on VanEck Semiconductor ETF (SMH).

Description: https://responsive.fxempire.com/v7/_fxempire_/2021/12/word-image-274.png?func=cover&q=70&width=436

Source: Chart prepared by author using data from IEEE Spectrum and augmented to highlight metaverse demand

This chart basically shows semiconductor revenues per sector (with most coming from computing at 34.5%), but, since I have highlighted the technologies needed to build the metaverse, I use it to explore how META’s holdings fit the “meta” investment rationale.

The META rationale

First, META tracks the Ball Metaverse Index, the first index designed to track the performance of the metaverse.

Second, the ETF’s main holding is NVDIA (NVDA) at 8.34% of total assets, also happens to constitute a significant chunk of SMH’s basket. Now, as a designer of graphics processing units for the gaming and Bitcoin markets, this chip play whose products are vital for computing should be one of the main beneficiaries as a building block for everyone’s “virtual space”. Additionally, NVDIA is a system-on-a-chip unit’s provider for the mobile computing and the automotive industry.

Third, there is FB itself, and with more than 2.9 billion users as at the third quarter of 2021, and its success as a highly addictive social networking brand, there is no doubt that it will profoundly change our lives by rendering more virtual than ever, helped by a Covid-induced restriction in physical interactions.

https://static.seekingalpha.com/uploads/2021/12/26/49663886-16405745860315373.png

Source: RoundHill Investments

As for software plays like Microsoft (MSFT), Autodesk (ADSK), Unity Software (U), the metaverse is already proving to be a game-changer for working from home due to Covid. Continuing along the same thought process, instead of seeing their colleagues on a video call screen, employees could join them in a virtual office. Here, one of the main benefits of the metaverse is believed to be “presence,” meaning the feeling of physically engaging places and characters instead of looking at them through a laptop or smartphone screen.

Coming to Apple (AAPL), it has one of the world’s largest AR platforms with hundreds of millions of AR‑enabled devices, as well as thousands of related apps on the App Store. Now, one of the essential building blocks of the metaverse is interoperability whereby users must be able to move throughout the metaverse, while effortlessly make the transition to the physical world. For this purpose, they need AR devices which are supported by Apple’s iPhones. There is also an analyst forecasting that Apple’s “mixed reality headset will come out in the late 2022 or early 2023”, with the Apple Glasses to follow in 2025.

Apple should also benefit through its gaming division just like Roblox (RBLX), an online game platform which allows users to play games created by other users. In a metaverse scenario, one can envisage players retaining their avatar while hopping from one game to another or even a virtual shop for purchasing purposes, regardless of the brand of the user’s device.

After painting an enthralling picture of META, I now address some pain points.

META’s shortcomings

Since the concept of metaverse is relatively new, there will be many use cases that will arise in the future, but the space is also likely to be under intense regulatory scrutiny as lawmakers become wary of the power of big techs at extending their control on our social lives to a further degree through virtual reality. Governments may for example restrict the number of hours we can spend in the metaverse just like China is restraining the number of hours children can play games. Furthermore, Apple with its IOS operating system is only a part of the global smartphone ecosystem and it will have to be a metaverse which also encapsulates the Android operating system by Google (GOOG) with its brand of AR. META certainly includes the Android play, but only at a paltry 1.71% of holdings.

Pursuing further, META does include pioneers in content, commerce, and social for the metaverse, such as Sea (SE), Amazon (AMZN) and Snap (SNAP), and I also noted that it includes web infrastructure companies like CloudFlare (NET). On the other hand, I noted the absence of wireless plays from its portfolio. Also, the fund managers do not mention Industrial 4.0 applications, namely 3D printing which is crucial to allow transition from the virtual to the physical world.

Looking for further support from the share performance side, despite all these hot talks about the metaverse and META having already crossed the $900 million in total assets under management within six months, it managed to produce a meager 2.59% gain during this time. This is dwarfed by SMH or even the Technology Select SPDR ETF (XLK), with both these two funds producing above 17% gains in the same time period.

https://static.seekingalpha.com/uploads/2021/12/26/49663886-16405745860053453.png

Source: tradingview.com

This calls for a dose of realism.

Conclusion

There is no doubt that META is an innovative ETF with its index consisting of a tiered weight portfolio of globally-listed companies who are actively involved in the metaverse, but this whole concept is still new and rapidly evolving. I also like the fact that Roundhill Investments have also included companies like Block (SQ) and Electronics Art (EA), thus showing their perfect understanding of the Blockchain side of things.

Still, I am not convinced as to the percentage of asset held for each stock. Now, as an actively managed fund charging 0.75% in fees, the portfolio is likely to see rapid changes, but at this stage, it is preferable to wait. Finally, those who want early metaverse exposure, both SMH and XLK can be considered as proxy ETFs for this purpose, and come at lower expense ratios of 0.35% and 0.12% respectively.

Disclosure: I am long XLK.

Earnings Calendar Quiet Next Week: What to Expect in the Markets in 2022

With stocks heading into what has historically been a good time of year for stocks, investors will carefully monitor the latest news on the rapidly spreading Omicron coronavirus variant to see how it affects the U.S. economy and company earnings in 2022. The following is a list of earnings slated for release December 27-31, along with a few previews. Although next week’s earnings are unlikely to have much of an effect on major market movements, it is sufficient to gauge investors’ sentiment.

Earnings Calendar For The Week Of December 27

Monday (December 27)

TICKER COMPANY EPS FORECAST
QIPT Quipt Home Medical $0.01

 

Tuesday (December 28)

TICKER COMPANY EPS FORECAST
CALM Cal-Maine Foods $0.28
NEOG Neogen $0.17

 

Wednesday (December 29)

TICKER COMPANY EPS FORECAST
FCEL Fuelcell Energy $-0.02
NG Novagold Resources $-0.03

 

Thursday (December 30)

TICKER COMPANY EPS FORECAST
CRON Cronos Group $-0.09
IBRX ImmunityBio $-0.2
SAFM Sanderson Farms $3.8
MKC McCormick $0.8

 

Friday (December 31)

No major earnings are scheduled for release.

What to Expect in the Markets in 2022

The year 2021 is drawing to a close and analysts and investors are already looking forward to the year 2022. In a year in which the S&P 500 has returned more than 15% for the third straight year, investors have to wonder whether there will be any more upside in the stock market over the coming year.

“We expect solid economic and earnings growth in 2022 to help U.S. stocks deliver additional gains next year. If we are approaching—or are already in—the middle of an economic cycle with at least a few more years left (our view), then we believe the chances of another good year for stocks in 2022 are quite high. We believe the S&P 500 could be fairly valued at 5,000–5,100 at the end of 2022, based on an EPS estimate of $235 for 2023 and an index P/E between 21 and 21.5,” noted Ryan Detrick, CMT, Chief Market Strategist, LPL Financial.

“Prospects for above-average economic growth and accompanying earnings gains in 2022 point to another potentially good year for stock investors. While the pandemic is not completely behind us as the COVID-19 Omicron variant spreads rapidly (though with a high proportion of mild cases), and there are several other risks to watch, particularly inflation, stocks have historically done well in mid-cycle economies. We do not expect 2022 to be an exception,” LPL Financial’s Detrick added.

According to a stockmarket.com report, three FAANG stocks will be closely watched next year. In the context of the broader stock market’s recovery, tech stocks are once again in focus. Among the most successful stocks in the sector, the FAANG stocks shine brightest as S&P 500 companies with a tech component make up a large portion of the index. In case you’re not familiar, this group of stocks includes Meta Platforms (formerly known as Facebook), Amazon, Apple, Netflix, and Google’s parent company Alphabet will be in focus in 2022.

“More volatile equity markets in 2022: At face value our global macro forecasts suggest a continued benign backdrop for equities in 2022 with strong nominal (and real) GDP growth, moderating inflation through the year and no rate hikes from any of the G3 central banks. However, underneath the surface we think there are a number of reasons to suggest that global equities’ serene progress over the last 18 months will become somewhat more volatile going forward as earnings growth slows, bond yields rise, and corporates continue to juggle the challenges of disrupted supply chains and elevated input costs. We think that these issues weigh most heavily on the US equity market but are more optimistic elsewhere, especially in Europe and Japan, where our risk/reward frameworks still look quite appealing,” noted Michael J. Wilson, equity analyst at Morgan Stanley.

“Underweight US stocks: Slower EPS growth and higher starting valuations versus global peers leave us underweight the S&P, where our target of 4400 implies 5% downside potential. Risk/reward looks more appealing for Europe and Japan: We are overweight Europe and Japan (8% and 12% upside potential, respectively), where we see the best EPS growth for 2022 and where valuations have already reset to more attractive levels. We remain neutral on EM and China for now. Recommendations: Potential for sector and style dispersion feels more limited than usual. We are overweight financials across all regions and positive on energy in Europe and EM. Consumer discretionary is a high-conviction underweight in the US,” Morgan Stanley’s analysts added.

We wish you a happy, healthy New Year!

Business People are Leaving Lucrative Jobs to Join the Cryptocurrency Space

Recent times have seen professionals leave lucrative employment to join the blockchain industry. Major U.S. banks like JP Morgan generate more money than ever before, yet finance veterans are ‘unsettled and uneasy.’ Digital currencies are also becoming increasingly popular among software engineers as a way to make money online.

Wall Street Peer into the Crypto Ecosystem

Goldman Sachs boss David Solomon counts the company among America’s most profitable public companies. The bank head gave the statement on a gathering for retired partners. However, Geoff Boisi, a seasoned mergers banker, noticed how quiet the excitement was.

The typical noises of Wall Street’s backslapping and toasts have died away near the conclusion of yet another financial year. They’ve been silenced by the aftereffects of nearly two years of a worldwide pandemic and the suspicion in an era of enormous disparities.

Industry workers feel that tasks are never-ending, that problems are brewing, and that the genuine adventure is elsewhere. The recent gains of wealthy traders and dealmakers are being outshined by the spectacular riches touted by cryptocurrency enthusiasts, fintech experts, and meme stocks.

Additionally, there’s the gnawing feeling that the financial sector is benefiting from the mayhem unleashed by Covid-19. J. Christopher Flowers, a prominent Wall Street investor, says it this way: Wall Street understands that much of the windfall is coming from “speculative nonsense.”

 The Financial Culture Shift

Financial gains have shifted from traditional entities to the crypto industry. In a new era, high-end financial executives have left notable positions for a goldmine lying with cryptoassets. One of the most significant issues is that bankers are preoccupied with wealth rather than significance.

According to Red-Horse Mohl, for a century, Wall Street has been devoid of a sense of community engagement and sustainability. Finance executives are well aware that widening income disparity is a problem, but they can’t seem to stop it from getting worse.”

As a result, most investors have abandoned the stock market and concentrated on the crypto sector, which provides financial equity. For example, after leaving her position as a vice president of Amazon’s cloud computing unit, Sandy Carter began working for a crypto technology firm. She soon provided a link to the company’s open positions.

Within two days, she claims that more than 350 people – many of the leaders in the internet business sector – had clicked on the link to apply for employment at Unstoppable Domains. The exodus of CEOs and engineers from cushy posts at Google, Amazon, Apple, and other large tech firms is part of a more significant trend.

They suggested that the next big thing is crypto, with a catchall category that includes digital currencies like Bitcoin and NFTs-based items. Now Silicon Valley is flooded with tales of individuals holding massive cryptocurrency holdings.

Amazon Could Be The First Among FAAMG to Launch a Crypto Token

A recent Amazon advert has got the crypto world buzzing. The retailer advertised for a lead position in digital currencies and blockchain. The news excited crypto enthusiasts who couldn’t stop speculating on the move’s meaning. Some went as far as suggesting that Amazon teased its entry into the crypto space.

This development saw the firm scramble for a clarification. It refuted that it was entering the crypto sector. But Its denial did little to quell the growing speculation. If anything, it left more answers than questions. Chief among these questions is what the idea means for Amazon’s crypto interests.

It poses questions about the retailer’s crypto push compared to other FAAMG members. The other members of the quintet are Facebook, Apple, Microsoft, and Google. Could some factors give Amazon the advantage over them in their bid to launch crypto tokens? This article assesses why Amazon could become the first of the FAAMG to launch a crypto token.

How Could Amazon Become the First FAAMG to Issue a Crypto Token?

The growth of crypto payments has sent many industry players back to the drawing board. They’ve had to reconsider placing cryptocurrencies in their operations. The FAAMG quintet hasn’t lagged in this either. That said, in the crypto adoption race, Amazon seems to have the edge over the other four. Here are the top reasons why it could pioneer in launching a crypto token.

It Has a Functioning Digital Asset Already

Amazon isn’t a newbie in the crypto sector. Its interest in the area goes back to 2013. Then, the company launched AmazonCoins, a virtual currency used by its customers. Can use them to buy Kindle-based apps and games.

The token goes for about $0.01 and has wide acceptance within Amazon’s ecosystem. Should the company decide to issue a native token, it already has a prototype to work with. Developing a token is a time-consuming venture. So since Amazon has a functional currency in use, transforming it into a token will be effortless. Unlike the rest, Amazon wouldn’t have to start from scratch.

It’s a Trusted Global Brand

According to a recent Morning Consult study, Amazon is the fifth most trusted brand in the world. Although Google and Microsoft ranked ahead, they’ve faced accusations of data mining. Facebook also continues to face the same allegations.

Amazon may also mine data, but in contrast, it allows users greater freedom in what they’d want to share. One of the cryptos’ selling points is confidentiality. On this score, it’s easy to see why the public would accept Amazon’s token compared to the rest.

Its AWS Platform is a Key Player in the Crypto Space

Another factor playing to Amazon’s advantage is its Amazon Web Service (AWS). AWS is the firm’s computing arm providing BC service known as the managed blockchain. Many global firms have been renting access to the network rather than building their own.

AWS is a perfect fit for launching the Amazon token should the company decide to do so. For one, it’s a proven BC system backed by the trust of thousands of global firms. So, it makes total sense that deploying a crypto token would be an easy thing to do.

Amazon’s Deep Involvement with Ethereum

The firm is already a key player in the crypto universe. Amazon supports a quarter of the global Ethereum (ETH) workload. This is a justifiable fact as ETH is second only to Bitcoin (BTC) in market share. But ETH is more than a currency; it’s a whole financial ecosystem.

Other players in the industry are still developing their BCs. ETH is evolving to include more functionalities. And with it, so has AWS’ significance within the crypto space. When Amazon launches its token, it’ll use AWS’ experience and reputation. It will thus reach the masses.

Amazon is Investing in its Blockchain and Crypto Teams

Amazon’s advert came out as a dead giveaway on its crypto project. Why else would they want to hire for such a position? Again, it follows CoinDesk’s February report on Amazon’s “digital currency” project in Mexico. Furthermore, the firm has in the recent past announced over 70 openings for BC experts. What’s clear is that Amazon is beefing up its BC and crypto teams. It’s doing so to make its presence in the crypto space permanent.

It Holds Patents to Crypto Domains

In 2017, Amazon acquired three crypto-related domains. These are:

  • AmazonEthereum.com
  • AmazonCryptocurrency.com
  • AmazonCryptocurrencies.com

It has also indicated an interest in Proof of Work and Merkle Trees cryptosystems. The move gives it a head start over the other four.

Amazon Has an Extensive Network of Loyal Customers

Statista reports by Q1 2021, Prime – its premium membership platform -had 200 million members. The membership renews at $119 annually. Members enjoy certain privileges from the retailer. Besides their loyalty, prime members are early adopters. Thus, they will readily embrace an Amazon token upon launch.

It Has Always Been an Industry Disruptor

Amazon has a reputation for disrupting industries. And AWS has enabled firms to cut third parties from their functions. There’s no reason why it can’t use the platform for its crypto offering.

What Do The Developments at Amazon Mean?

Despite Amazon denying that it’ll be accepting cryptos, their statement speaks otherwise. The emphasis, in their view, is the denial of the timeline. It isn’t their interest in accepting cryptocurrencies. Major tech companies are growing their interest in cryptocurrencies. And there’s no doubt that Amazon will embrace them sooner or later too.

The Drive is Reputational

Here, there are several points worth mentioning. First, it’ll install crypto payments or tokens in its cloud and intellectual products.

Banks provide major online stores with quite favorable terms. So, crypto payments do not solve any of their most pressing problems. Accepting crypto for such e-commerce platforms is more reputational than economic.

Amazon is Creating its Ecosystem

Secondly, Amazon is more interested in accepting payments through its token. That is, they’re creating their ecosystem within the existing platform. The ecosystem is already there, and the token will fit in easily. It’s easy to assume that Amazon’s plans to accept crypto payments extend into BTC and ETH at most. But not the whole list of cryptocurrencies, as City AM had reported.

Are There Downsides To Amazon’s Crypto Entry?

Amazon’s entry into crypto is good, even commendable. But it may not be without its downsides. The firm has come in for criticisms on how it operates.

Firstly, critics speak of its monopolistic tendencies. In the past, it has used patents as an anti-competitive measure. A monopoly with the might that Amazon has would spell disaster for the crypto space.

Secondly, it has previously practiced price discrimination. It apologized and offered refunds for affected customers following the fiasco. There’s no telling if the firm won’t go back to the same discriminatory measures.

Final Thoughts

When you’re Amazon, the public scrutinizes your every move. It wouldn’t matter even if it’s filling up an opening in one of your departments. Recently the firm announced that it was recruiting a blockchain and crypto lead. The successful candidate would drive the retailer’s vision and strategy in that space. The news sent the crypto world into a frenzy speculating on what the move meant.

So, Amazon denied that it was preparing to accept crypto payments. But the denial did little to quell those speculations. Some crypto enthusiasts contend that Amazon is coy about its crypto interests. They pointed out that it can’t lag as other tech giants embrace the technology.

Further, they posit that it has a headstart over the other members of the FAAMG in the race for crypto adoption. For now, let’s wait and see what Amazon’s next move will be. But, what’s not in doubt is that its adoption of cryptos is a matter of time.

Why Roku Stock Is Up By 10% Today

Roku Stock Rallies After Company Reaches Deal To Keep YouTube And YouTube TV On Its Platform

Shares of Roku gained upside momentum after reports indicated that the company managed to reach a deal with Google which will keep YouTube and YouTube TV apps on Roku.

Roku stock has been under strong pressure in recent weeks as the deal with Google was set to expire in December. If companies failed to reach a deal and YouTube was removed from Roku, its stock would have found itself under significant pressure.

The multi-year extension for YouTube and YouTube TV removes the key risk for Roku, and it’s not surprising to see that the stock is up by roughly 10% in today’s trading.

What’s Next For Roku Stock?

Analysts expect that Roku will report earnings of $1.58 per share this year and $1.62 per share in the next year, so the stock is trading at roughly 145 forward P/E.

It should be noted that Roku stock traded near $490 in July but later found itself under significant pressure together with other high-flying pandemic-era leaders. While the stock has lost more than 50% of value in less than half a year, its high valuation remains a concern.

It remains to be seen whether the market will be able to tolerate such valuation levels in case Treasury yields continue to move higher and the Fed gets closer to raising interest rates.

Roku is the second biggest position of the famous ARK Innovation ETF, and traders must watch its performance closely as the continuation of the sell-off in ARKK will inevitably put more pressure on Roku stock.

In the near term, the YouTube deal removed the key risk and may provide additional support to Roku stock. In the longer-term, Roku will need to show solid growth rates or its stock will face another sell-off.

For a look at all of today’s economic events, check out our economic calendar.

Stocks Move Higher As Traders Stays Optimistic Despite Recent Sell-Offs

Stocks Gain Ground At The Start Of The Week

S&P 500 futures are gaining ground in premarket trading as traders look ready to buy stocks after Friday’s sell-off.

Recent trading sessions have been volatile, as some traders sold equities on fears over the new variant of coronavirus while others were willing to buy stocks at discount.

It should be noted that Nasdaq futures are losing ground in premarket trading as the sell-off in the tech space continues. The market is not ready to tolerate sky-high valution levels in case companies do not show strong growth. Broader bullish bets on the high-growth market segment like ARK Innovation ETF have been under significant pressure in recent weeks.

The weakness in the tech space may have a material impact on S&P 500 as leading tech stocks have a significant weight in the index. In premarket trading, Apple stock is moving higher while Tesla stock is down by about 2%. Alphabet, Microsoft, Meta Platforms and Amazon are mostly flat.

WTI Oil Moves Higher As Saudi Arabia Raises Prices For Asian Customers

WTI oil continued its attempts to settle above $68.50 after reports indicated that Saudi Arabia increased prices for Asian customers by up to $0.80.

Recent reports from South Africa suggested that Omicron cases were not severe, and it looks that the panic over the new variant of coronavirus calms down. However, oil markets will likely remain sensitive to any news about Omicron and its potential impact on oil demand in the upcoming weeks.

Not surprisingly, the upside move in the oil markets provided support to oil-related stocks, which look ready to gain ground at the start of today’s trading session.

Gold Tries To Settle Above $1775

Gold managed to get back above the $1775 level and is trying to develop additional upside momentum despite higher Treasury yields and strong dollar.

It looks that the recent sell-off in crypto markets, which pushed Bitcoin below the $50,000 level, provided support to gold.

Meanwhile, gold mining stocks will likely find themselves under pressure at the start of today’s trading session as investors remain cautious towards this market segment.

For a look at all of today’s economic events, check out our economic calendar.

Meta to Allow More Crypto Adverts on Facebook and Instagram

The cryptocurrency space has been gaining traction in recent months despite the difficulties in advertising. The market is worth over $2.5 trillion and is expected to grow bigger over the coming years.

Facebook Expands its Advert Eligibility Terms

Social media giant Meta announced yesterday that it had expanded its advert eligibility terms. This latest development will make it easy for cryptocurrency and blockchain companies to advertise their products and services on Facebook and Instagram.

In a blog post yesterday, Meta said it would recognize an additional 27 regulatory licenses from advertisers, up from just three previously. As a result, several cryptocurrency companies will be able to advertise their products and services.

Meta said, “We’re making it easier to run ads about cryptocurrency on our platform by expanding the number of regulatory licenses we accept. We’re doing this because the cryptocurrency landscape has continued to mature and stabilize in recent years and has seen more government regulations that are setting clearer rules for their industry.”

The social media giant said cryptocurrency companies operating in certain areas would need to provide prior written permission to run ads on its platforms. These entities include cryptocurrency exchanges and trading platforms, platforms and software apps or products that offer crypto lending and borrowing, cryptocurrency wallet providers and crypto software and hardware miners companies.

Meta added that “Cryptocurrency continues to be an evolving space, and we may refine these rules over time as the industry changes. This includes adding eligible licenses to the list as they become available and after we have reviewed them.”

This latest development comes as Facebook rebranded to Meta a few weeks ago and declared its intention to go deeper into the metaverse space.

Will Google Adopt Similar Changes?

Search engine giant Google is still reluctant to allow full cryptocurrency adverts on its platform. Some cryptocurrency businesses are still unable to advertise on Google, the world’s largest and most highly used search engine.

However, Google could change its advert policies in the future as the cryptocurrency space continues to evolve and grow bigger.

Google to allow third party app payments for first time in S.Korea

By Heekyong Yang

SEOUL (Reuters) -Alphabet’s Google said on Thursday it plans to allow third-party payment systems in South Korea to comply with a new law, marking the first time the U.S. tech giant has amended its payment policy for a specific country.

Google’s announcement comes after a Korea Communications Commission’s (KCC) request for Google and Apple Inc to come up with compliance plans for the new law, which bans major app store operators from forcing software developers to use their payments systems. Most of the new law went into effect in mid-September.

The curb is the first such move by a major economy on the likes of Apple and Google, which face global criticism for requiring the use of proprietary payment systems that charge commissions of up to 30%.

In late August, parliament passed an amendment to South Korea’s Telecommunications Business Act – dubbed the “anti-Google law” – banning big app store operators, such as Google and Apple Inc from forcing developers to use their payment systems, effectively stopping them from charging commission on in-app purchases.

“We respect the decision of the National Assembly, and we are sharing some changes to respond to this new law, including giving developers that sell in-app digital goods and services the option to add an alternative in-app billing system alongside Google Play’s billing system for their users in South Korea,” Google said in a statement.

Google, which charges developers a 15% service fee for distributing apps, said it would reduce this to 11% when users choose an alternative billing system, recognising that developers will incur costs to support their own billing system.

It was unclear how beneficial that would be for developers.

Google added that alternative billing systems may not offer the same protection or payment options and features of Google Play’s billing system.

The KCC said Google’s plans would be implemented this year and would only apply to South Korea.

“We were able to confirm Google’s determination to comply with the law, and I hope (Google) will implement this policy change in a way to reflect the legislative purpose of the revised law,” said KCC Chairman Han Sang-hyuk.

In October, Apple told the South Korean government https://www.reuters.com/technology/skorea-targets-apple-over-new-app-store-regulation-2021-10-15 that it was already in compliance with the new law and did not need to change its app store policy.

The KCC said it would ask Apple’s South Korean unit for a new policy allowing greater autonomy in payment methods. If Apple failed to comply, it would consider measures such as a fact-finding investigation as a precursor to possible fines or other penalties.

Apple did not immediately respond to a request for comment.

(Reporting by Heekyong Yang and Paresh Dave; Editing by Jacqueline Wong and Richard Pullin)

Alphabet to reopen Google News in Spain after govt amends rules

MADRID (Reuters) – Alphabet plans to reopen its Google News service in Spain early next year after the government passed new legislation that allows media outlets to negotiate directly with the tech giant, the company said on Wednesday.

The service closed in 2014 after the government passed a rule that forced Alphabet and other news aggregators to pay a collective licensing fee to republish headlines or snippets of news.

“Starting early next year, Google News will provide links to useful and relevant news stories,” Google Spain Country Manager Fuencisla Clemares wrote on a company blog.

“Over the coming months, we will be working with publishers to reach agreements which cover their rights under the new law,” he added.

The Spanish government on Tuesday approved a European Union copyright directive that allows third-party online news platforms to negotiate directly with content providers.

The EU legislation, which must be adopted by all member states, requires platforms such as Google, Facebook and others to share revenue with publishers but it also removes the collective fee and allows them to reach individual or group agreements with publishers.

The debate over Google News had pitched traditional media, who backed the old system, against a new breed of online outlets, who expected more revenues from direct agreements with Alphabet and the other platforms than through their share of the collective fee.

Arsenio Escolar, chairman of the CLABE publishers association, which groups around 1,000 mainly online news outlets including leading digital brands such as El Espanol and Eldiario.es, said he was pleased with the new legislation.

The AMI media association, which represents mainly the old guard of traditional media and was in favour of maintaining the previous system declined to comment on the government’s decision.

 

(Reporting by Inti Landauro and Emma Pinedo; Editing by Nathan Allen and Keith Weir)

Week In Review: Tech Disappoints, US Growth Slows, Inflation Concerns

Monday kicked off on a cautious as a fresh Covid-19 outbreak in China fuelled worries over slowing growth in the world’s second-largest economy. However, the mood slightly improved as investors banked on strong corporate earnings to lift risk sentiment. On the data front, the German IFO Business Climate Index fell from 98.9 to 97.7 thanks to supply bottlenecks. In regards to earnings, Facebook (Meta Platforms Inc) reported a mixed earnings result with earnings per share (EPS) beating estimates but revenues missing analyst forecasts.

Our trade of the week was the EURJPY due to the Bank of Japan (BOJ) and European Central Bank (ECB) meetings on Thursday. Although both central banks left interest rates unchanged, there were some interesting takeaways. The BOJ cut its economic growth forecast for 2021 to 3.4% compared to the 3.8% previously expected while the ECB pushed back against rising interest rate hike expectations. Overall, it was a pretty choppy week for the EURJPY with prices swinging within a 100-pip range. The bearish close on Friday could open doors to lower levels in the new month.

All eyes were on the tech giants on Tuesday with Alphabet, Microsoft, and Twitter due to report their earnings after the closing bell. Alphabet and Microsoft reported better than expected quarterly profit and revenue. However, Twitter’s third-quarter earnings missed analysts’ forecasts but met estimates on revenue. In other news, consumer confidence in the United States rebounded in October, rising to 113.8 up from 109.8 in September.

Mid-week, a lot was going on across financial markets. We had industrial profits from China, Germany’s latest consumer confidence report, the UK government’s autumn budget, and the Bank of Canada rate decision.

One of the biggest takeaways from the Autumn budget was that the UK economy was expected to return to pre-Covid levels by 2022 with annual growth set to rebound by 6.5% this year. In regards to inflation, it was seen rising to average 4% over next year, according to the Office for Budget Responsibility. Market-wise, the dollar was shaky, gold struggled to keep above $1800 while oil tumbled after data showed a larger than expected increase in U.S crude stockpiles.

On Thursday, the BOJ and ECB left interest rates unchanged as widely expected. There was a lot of attention directed towards the US Q3 GDP and earnings from not only Amazon but Apple. Market sentiment took a hit thanks to the disappointing growth figures from the United States. The largest economy in the world grew at a 2% annualized pace in Q3 – its slowest increase since the end of the 2020 recession. To add insult to injury, both Apple and Amazon had rare earnings disappointments – raising questions about labour shortages, supply squeezes, and rising inflation.

Speaking of inflation, the core Personal Consumption Expenditure (PCE) Index which is the Fed’s favoured measure of inflation held steady at 3.6% in September. Headline inflation, including food and energy, rose at a 4.4% annual rate in September from 4.2% in the prior month. When factoring in how US CPI remains at a 13 year high, this may fuel expectations over the Fed raising interest rates sooner than expected. King dollar appreciated aggressively following the PCE report while gold tumbled, ending the week on a negative note.

By Lukman Otunuga Senior Research Analyst

Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

What to Expect from Facebook, Apple, Amazon, Microsoft, Google Earnings Reports?

FAAMG stocks overview

These are also considered the biggest tech stocks in the world, and all but Facebook now rank among the top 5 biggest companies on the planet (Saudi Aramco currently ranks 3rd in the top 5). Facebook this week has actually been pushed out of the number 6 spot and replaced by Tesla, the latter of which surpassed the $1 trillion mark on Monday thanks to a massive 100,000 car order from rental car company Hertz, as well as strong earnings and forward guidance.

Facebook on the other hand indicated struggles in offsetting disruptions to its advertising business while also providing investors with an uncertain outlook for the quarters ahead. Both Facebook and Tesla were rewarded and punished accordingly, which has been a key theme this earnings season as investors sort out which businesses have more earnings potential from those that may be “overvalued” in this new environment.

There have been some jitters that disappointing results from the tech behemoths could result in a sell-off across the entire sector, dragging major indexes down with them.

So far, that’s obviously not been the case. Investors today expect Apple earnings will again blow the top off of Wall Street expectations. Meanwhile, Amazon investors are anxious after the company delivered a rare miss on revenues last quarter due to slower growth in its e-commerce business.

Amazon is again up against very strong year-ago numbers that were largely boosted by the pandemic.

This year, the company also faces not just more competition from physical stores who have transitioned to online but also widespread product shortages as a result of supply chain dislocations.

A lot of attention will be paid to Amazon’s outlook for the holiday shopping season and overall forward guidance for Q4 and Q1.

Data to watch today

Other big names that report earnings today include Caterpillar, Comcast, Gilead, Hershey, Mastercard, Merck, Northrop Grumman, Royal Dutch Shell, Sanofi, Shopify, Starbucks, Stryker, and Yum Brands to name a few.

As for economic data, today’s highlight is the first estimate of U.S. third quarter GDP is expected to show a slowdown in growth from the second quarter due to the Delta Covid wave this past summer.

Growth also likely took a hit from ongoing supply chain disruptions that appear to have intensified in the third quarter.

Pending Home Sales for September are also due today. Turning to oil markets, futures prices are under pressure following news that the European Union agreed to resume talks with Iran talks to revive the 2015 nuclear deal before the end of November. Meaning Iran’s oil production could soon be back in play. Iran’s crude exports dropped from a height of 2.5 million barrels a day in 2017-2018 to around 200,000 bpd in the second half of 2019, when Washington re-imposed full sanctions.

It’s unclear whether adding Iran’s crude output back into the mix will lead to an increase in OPEC production. The oil group has been adding back +400,000 barrels per day to its output on its way to resuming pre-pandemic production levels. However, several OPEC members have struggled to meet their production quotas, which has exacerbated tight global supplies.

Cyclicals Drag S&P 500 Lower; Microsoft, Alphabet Keep Nasdaq Flat

Microsoft Corp gained 4.21% to close at a record high after forecasting a strong end to the calendar year, fueled in part by its booming cloud business. Alphabet Inc jumped 4.96% after reporting a record quarterly profit on a surge in ad sales.

The gains in the two stocks accounted for nearly 90 points to the upside in the tech-heavy Nasdaq while Microsoft was the biggest boost to the Dow Industrials, S&P 500 and Nasdaq.

A pullback in longer-term U.S. Treasury bond yields and a flattening of the yield curve also helped support growth names such as those in consumer discretionary and communications services, which were the only advancing S&P sectors on the day.

The benchmark 10-year U.S. Treasury yield declined for a fourth straight day, dropping more than 6 basis points to put it on track for its biggest one-day decline since Aug. 13.

“The growthy names will get a boost not just from some of the earnings stuff but because interest rates are lower,” said Megan Horneman, director of portfolio strategy at Verdence Capital Advisors in Hunt Valley, Maryland.

“Interest rates are temporarily lower because of the fact that there is some uncertainty from the tax perspective and what that might do. We do know the Fed is going to taper, that has pretty much been priced in but now you have a lot of talk about what the future of the Federal Reserve may look like.”

The Dow Jones Industrial Average fell 266.19 points, or 0.74%, to 35,490.69, the S&P 500 lost 23.11 points, or 0.51%, to 4,551.68 and the Nasdaq Composite added 0.12 point, or unchanged, to 15,235.84.

In contrast, the flattening curve served to weaken financials, while a drop in crude prices after data on U.S. stockpiles pulled energy names lower, with both sectors suffering their biggest one-day percentage decline in five weeks. JP Morgan shares fell 2.08% and Exxon Mobil declined 2.60%.

A solid start to earnings season has helped push the S&P 500 and the Dow to all-time highs this week, as investor concerns over the ability of companies to navigate supply-chain bottlenecks, labor shortages and rising price pressures have been allayed for now. The Nasdaq sits less than 1% away from Sept. 7 closing record.

“While we are not out of the woods by any means, companies are adjusting quicker than we had anticipated,” said Horneman.

Profits for S&P 500 companies are expected to grow 37.6% year-on-year in the third quarter. Out of the 192 companies that have reported earnings, 82.8% have topped analyst expectations, according to Refinitiv IBES data.

The move into the growth names like technology stocks was also triggered after some U.S. Senate Democrats proposed taxing billionaires’ unrealized gains from their assets, while concerns around the timing of rate hikes resurfaced ahead of the Federal Reserve’s policy meeting next week.

The S&P 500 growth index climbed about 0.28% while its value counterpart fell 1.44%.

Robinhood Markets Inc tumbled 10.44% after the retail broker reported downbeat third-quarter revenue as trading levels declined for cryptocurrencies including dogecoin.

Declining issues outnumbered advancing ones on the NYSE by a 2.43-to-1 ratio; on Nasdaq, a 2.29-to-1 ratio favored decliners.

The S&P 500 posted 36 new 52-week highs and 5 new lows; the Nasdaq Composite recorded 72 new highs and 133 new lows.

Volume on U.S. exchanges was 11.74 billion shares, compared with the 10.43 billion average for the full session over the last 20 trading days.

For a look at all of today’s economic events, check out our economic calendar.


(Reporting by Chuck Mikolajczak in New York; Editing by Matthew Lewis)

How Supply Issues could Influence SP500?

At the same time, many businesses continue to announce plans for further price increases, with most facing higher cost pressures. It will be interesting to see how or when the U.S. consumer starts to pull back.

Upcoming price increases

UPS yesterday was the latest to announce upcoming price increases, joining companies like Kimberley-Clark, Procter & Gamble, Nestlé, and Chipotle, to name just a few that are attempting to offset higher input costs. These moves reinforce the bears argument that inflation will prove to be longer-lasting than the Federal Reserve’s stance that the wave of higher prices is only “transitory.”

Judging from regional Federal Reserve Manufacturing Surveys that have been updated so far, challenges related to supply chain dislocations and labor shortages continue to contribute to the inflationary environment. Meaning manufactures are still struggling to expand output amid raw material shortages, higher input costs, transportation bottlenecks, and a lack of qualified workers. There have been minor improvements with the pace of cost increases easing a bit and respondent outlooks turning more positive.

It will take more than one month of slightly better data for investors to believe the worst of the supply chain mess is behind us, though.

Data to watch today

Economic data today includes advanced reads on Retail and Wholesale Inventories for October. Bulls are hoping inventories have managed to climb from depressed levels brought on by supply chain challenges, especially as we head into the holiday shopping season. Remember, if companies don’t have the products to sell it will be tough to meet earnings and growth forecasts.

Durable Goods Orders for September is also due today. Oil traders today are anxious to see the Energy Information Administration’s weekly oil inventory report after both Brent and WTI oil futures yesterday closed at their highest levels since 2014 when oil was trading close to $100 a barrel.

Investors this morning will also be digesting the Bank of Canada’s latest policy decision. Insiders are expecting the central bank to raise its inflation forecast and further cut its bond purchases. Another reduction will mark the fourth time in the past year that the Bank of Canada has “tapered” its asset purchases, something most other central banks have not yet begun. The Bank of Canada could also announce when it intends to begin interest rate hikes, with some analysts anticipating liftoff as soon as March due to rising inflation.

Such a move could increase fears that other global central banks, including the U.S. Fed, will feel pressured to act more aggressively to combat inflation. Meaning analysts could begin moving up timelines for when the Fed might end asset purchases and begin rate hikes, something that could weigh on bullish outlooks.

Earnings

It’s another busy day for earnings with highlights including BASF, Boeing, Bristol Myers Squibb, CME Group, Coca Cola, eBay, General Motors, Hilton Worldwide, Kraft Heinz, McDonald’s, Norfolk Southern, O’Reilly Automotive, Thermo Fisher, and Twilio. Alphabet (Google) and Microsoft announced after the market close yesterday with both blowing expectations out of the water.

Notably, Google’s advertising revenue, which rose +43%, didn’t appear to take any hits from changes made to Apple’s privacy policies, something cited by both Facebook and Snap. Both Google and Microsoft also saw continued robust growth in their cloud divisions with revenue climbing +45% and +31% respectively. Apple and Amazon will wrap up the the last of the so-called FAAMG stock earnings when they report tomorrow. Stay tuned…

Big Tech Pushing S&P 500… But How Does it End? Amazon, Apple, Facebook, Google, Microsoft and Tesla now make up 24% of the S&P 500. It seems like how they go so goes the overall stock market. Keep in mind, “Big Tech” now makes up about 40% of the entire S&P 500. If the trade finds Big Tech to be overvalued or in some type of bubble the market could take a sizable hit as it deflates.