FAANG Deluge: Apple, Amazon, Alphabet And Facebook Earnings All Ahead After Close

Key Takeaways:

  • Four FAANGs report after the close, following morning’s burst of key data
  • Market on track for worst week since March amid worries about virus, lack of stimulus
  • GDP, claims data both better than expected, giving market a slightly greener tone

If there’s a single day that defines earnings season, this is it. Buckle up.

The highlight comes after the close, when four of the five FAANGs open their books. Apple AAPL (AAPL), Amazon AMZN (AMZN), Facebook FB (FB), and Alphabet (GOOGL) results could help shape Friday’s market, though lately earnings news has taken a back seat to worries about rising virus cases, the election, and lack of a fiscal stimulus. This is shaping up as the worst week for stocks since March.

There’s a lot more below on what to expect from the FAANGs going into this climactic afternoon (see below chart), but to start things off, there’s some housekeeping as we sort through the morning’s data deluge.

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First, gross domestic product (GDP) for Q3 came in at a 33.1% seasonally adjusted rate. That was a bit better than the 30.2% analysts had expected, and seemed to put a charge back into stock futures an hour ahead of the open. By comparison, Q2 GDP fell 31.4%.

Though the headline GDP number is a seasonally adjusted annual rate, it also helps to look at Q3 in isolation. Q3 GDP rose more than 7% (you get this by comparing Q2 GDP of $17.3 trillion to Q3 GDP of $18.58 trillion). The Q3 recovery likely reflected shutdowns loosening over the summer and people getting back to work, accompanied by the stronger consumer spending and housing market we witnessed throughout Q3.

To put things in perspective, however, the 7% rise in Q3 means the economy has gained back roughly three-fifths of what it lost this year. Q4 GDP last year was $19.25 trillion, and we’re not back to that level. We would have needed 10% growth in Q3 to reach that. We’re still in a hole, and analysts expect the economy to contract more than 3% this year when all is said and done.

The other big data point this morning is weekly jobless claims. They totaled 751,000, a bit below expectations for 778,000. It’s good to see these coming down a bit, but they’re still well above the normal range.

Investors also get a vaccine update today from Moderna (MRNA), which reported this morning. In its press release, the company said its Phase 3 trial of 30,000 people is fully enrolled. It didn’t release any data from the study, but investors might want to listen for anything the company says on its call that might hint at a date to expect the first interim analysis.

Direction today might be a little hard to find because as the session advances, investors are likely to focus more and more on the FAANG fest coming up after the close. Before the GDP data gave it a lift, the U.S. market had been following the downward momentum of Europe, which followed yesterday’s downward U.S. momentum.

Though earnings last night and this morning don’t approach the holy grail of this afternoon’s FAANGs, there were some interesting ones. International Paper IP (IP) had a nice quarter, and Pinterest (PINS) had an amazing quarter. They just destroyed analysts’ top and bottom-line expectations, and monthly active users rose 37%. Shares soared 31% before the open.

More news, too, today from the chip sector. Marvell MRVL Technology (MRVL) is nearing a deal to buy Inphi (IPHI) for as much as $10 billion, The Wall Street Journal reported. This deal could help Marvell’s networking, and would be another mergers and acquisitions (M&A) development in the ongoing “chip war.”

Looking Back in Anger

If you can bear it, here’s a review of Wednesday’s carnage, brought to you by risk-off sentiment spreading on Wall Street.

The S&P 500 Index (SPX) fell 3.5%, and volatility soared. The Cboe Volatility Index (VIX) climbed above 40 for the first time since June 15. Crude dived yesterday and the selloff continued this morning as U.S. prices fell below $36 a barrel. That’s probably not a good sign if you consider crude a signal of investor optimism about the economy. This is crude’s first time under $36 since early June.

Worse, perhaps, is that the major indices all stumbled into the close and finished near their session lows as no sector escaped the carnage. The late move lower doesn’t exactly bode well for today.

Many investors have enjoyed a good run the last six months or so and appear to feel like taking profits and risk off the table until after the election is resolved. That might be a longer process than usual and may not get done next Tuesday, which is something you have to keep in mind.

At the same time, virus counts and, perhaps more significantly, hospitalization rates are up across the U.S., and traders have been keeping their eye on that statistic as something to be concerned about. VIX had its biggest one-day advance in a long while.

“Risk-off” sentiment began to creep in last week and accelerated Wednesday as hopes for more government stimulus came off the table. Stimulus basically left town when Congress and the White House couldn’t get it done last week, because now everyone’s waiting for the election. In fact, it’s possible there might not be any fiscal bump until February once the inauguration has taken place.

As investors scurried out of equities, some of the money appeared to go into fixed income. The 10-year yield—which moves opposite of the underlying Treasury note—dropped to 0.75% at times on Wednesday, down about 10 basis points from last week’s high. The yield on the 30-year Treasury bond dipped down to 1.54%, threatening the 1.5% level for the first time since early this month.

All of the FAANG stocks that report later today—meaning everyone except Netflix NFLX (NFLX)—fell 3% to 5% on Wednesday. Not exactly the way you want to go into reporting day. Some of the pressure might have reflected regulatory issues, with Alphabet (GOOGL), Facebook (FB) and Twitter (TWTR) getting slammed by senators from both parties in a hearing on Capitol Hill Wednesday, according to media reports.

Apple (AAPL) and Amazon (AMZN) also are on the earnings calendar after today’s close. For FAANG fans, it’s as big a day as they come. More on the FAANG earnings and what to watch for is below the chart.

The Technical Standpoint

Technically, the major indices are approaching some interesting levels as the Dow Jones Industrial Average ($DJI) fell below 27,000 and the SPX fell below 3300 on Wednesday. The $DJI has been in a stair-step pattern since last spring, with the steps at roughly 24,000, 26,000, and 28,000, while the SPX has spent a lot of time between 3300 and 3500.

With the $DJI now below 27,000 again, that 26,000 stair step comes into view, and that would represent a 10% correction. For the SPX, 3200 might be an important support level to watch now that 3300 has been breached. The 100-day moving average for the SPX stood at 3306 going into Wednesday’s session. That’s been taken out, but the more meaningful 200-day remains well below the market at 3129 (see chart below).

The 3129 level is particularly interesting because it lines up almost exactly with the year-to-date SPX average of 3135. If there’s more uncertainty and risk-off action in coming days, that support level could be pretty important.

It’s also possibly significant that unlike on Monday when indices made recovery efforts in the final minutes, that didn’t really happen Wednesday. Instead, the SPX traded near its low for the day in the last 10 minutes of Wednesday’s session. Sometimes a late recovery can carry into the next day, but the way Wednesday ended doesn’t give a lot of hope.

FAANG Earnings: What to Watch

Ever feel overwhelmed? Even veteran investors might this afternoon as four of the five FAANGs report basically at once. It’s the equivalent of a four-alarm fire for Wall Street, and any one or all the reports could influence the broader market Thursday night into Friday thanks to their swollen market caps.

While some factors, especially guidance, are likely to be critical for investors to watch with all of these earnings reports, each has its own respective focus points. For instance, advertising revenue could be key for Alphabet (GOOGL) and Facebook (FB), and cloud services growth is important for Amazon (AMZN). We all know the iPhone 12 is the gorilla in the room for Apple (AAPL).

As an investor, however, it can also help to be aware of some things that might initially go under the radar but still have an impact. While everyone’s focused on cloud and iPhone revenue, have you thought about TAC? (More on that below). Here are a few tidbits that could be overlooked by the media but might help shape market action in the hours and days after the FAANGs report.

Alphabet: Focus is likely to center on the advertising and regulatory environments, especially now that GOOGL is being sued by the Department of Justice for alleged monopoly practices. They might say something new on that, but this won’t really get interesting until the case moves a little further down the road. Meanwhile, something less dramatic but important to understand is the company’s “traffic acquisition costs,” or TAC. These are the fees GOOGL pays companies like AAPL to be the default search engine on the iPhone, and when they go up, it can hurt GOOGL’s bottom line. Last time out, this cost stayed steady from the previous quarter at $6.69 billion, and the company’s done a pretty good job of reining in TAC over the last couple years. Let’s see if that stayed the case last quarter. Preview GOOGL earnings here.

Facebook: We’ve heard so far from Microsoft MSFT (MSFT) and Snap (SNAP) on advertising revenue, and it was two very different stories. SNAP saw powerful gains and MSFT saw a 10% year-over-year drop in search ad revenue. So what story is it going to be for FB? Is it going to have more of a SNAP or a MSFT experience? As with all the FAANGs this time around, guidance is also going to be very important for FB. We saw how the market reacted to what investors viewed as a soft forward outlook from MSFT. Last quarter’s revenue isn’t really what people are focusing on. They want to know what’s coming next. Also, companies like FB are under pressure to continue monetizing their base. How can they squeeze more dollars out of each user? Preview FB earnings here.

Apple: More companies seem comfortable sharing guidance so far this earning season, so one big question going into AAPL’s earnings is whether they’ll give any. They didn’t the last two quarters, citing uncertainty due to the pandemic. The current quarter tends to be an important one for AAPL and AMZN (see more below) because of holiday season sales. Even if AAPL doesn’t give formal guidance, see if you can glean anything from the conference call in terms of executive optimism about holiday sales or lack of the same. One more thing: A lot of analysts called AAPL’s previous quarter a “blow-out” and the stock charged higher after earnings. If this time they just come in as expected or a little above, there might be some disappointment due to “whisper numbers” not being hit, which could put pressure on shares. As we’ve said here before, the market is sometimes like a spoiled child who gets a nice present and then asks, “Is that all?” Forewarned is forearmed. Preview AAPL earnings here.

Amazon: Few if anyone is likely very worried about AMZN’s quarterly revenue. It’s probably going to be impressive, with analysts expecting Q3 growth of more than 32%. So what are people concerned about? Spending. With AMZN, there’s a very big story about expenses, because they’ve had to build a lot of infrastructure to service the demand they’ve had and they’re talking about adding more headcount. While few have any doubts about revenue, the takeaway from earnings could be all about margins and the expense outlook, especially if AMZN has to also start putting in new investment to scale up Amazon Web Services, their cloud offering. They’re still the number one player in cloud services, but that requires infrastructure. And expenses. Preview AMZN earnings here.

TD Ameritrade® commentary for educational purposes only. Member SIPC.

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