Why the rout for big tech companies may just be getting started - MarketWatch

Wall Street isn’t looking at a too-terrible day ahead, when you strip out tech that is.

Late Wednesday was another cold, wet blanket for investors as Facebook parent Meta Platforms added its own ugly results to a gloomy pile of tech earnings. Margin pressure and weak ad demand may bode poorly for two more big names coming after Thursday’s closing bell.

“The recent price hikes announced by Apple should mitigate some of the expected weakness in the outlook, while Amazon will face triple pressure points in its e-commerce, advertising, and cloud business,” cautions Saxo Bank strategists.

We are staying on hot-button tech in our call of the day, which indicates it may be too soon to go dip buying in the sector, because the worst may not be over.

The Felder Report blog’s Jesse Felder, says if you combine market caps of Microsoft MSFT, -1.65%, Apple AAPL, -2.13%, Nvidia NVDA, +3.28%, Tesla TSLA, +0.15% and Amazon.com AMZN, -2.64% (he refers to them as ‘MANTA’) and compare that with their aggregate free cashflow, you get a forward earnings multiple of plus 50 times. But that’s down from 70 times at the start of 2022.

“This historic level of overvaluation was only made possible by massive money printing on the part of the Fed that supported both cash flows and the multiple applied to them,” Felder writes. “Now that inflation is raging, however, the money printer has been shifted into reverse and that’s already having a visible impact.”

His below chart is a consolidation of that reversal in valuations and falling liquidity:

TheFelderReport.com

The chart shows just how bad tech valuation could get, if it tracks the red dotted line representing Fed normalizing its balance sheet for the next few years. Thus, that valuation reversion could just be getting started, while price-to free cash flow ratios could see another 50% drop from current levels, said Felder.

A reversal in free cash flow would make the situation even more painful, he says. “Worryingly, that reversal in cash flows is actually what has happened over the past year in which growth went from double digits positive to double digits negative.”

Felder warned in April that given the pandemic and ensuing stimulus, it’s possible there was a “significant pulling forward of demand for Big Tech products and services that will now leave a vacuum of demand for a prolonged period of time.”

He says we are starting to see what that might look like, with a Fed-induced recession unlikely to help.

The markets

U.S. stocks DJIA, +0.92% SPX, -0.18% COMP, -0.98% are mostly higher, but tech is under pressure thanks to Meta, while bond yields TY00, +0.56% TMUBMUSD02Y, 4.342% are rising, along with the dollar DXY, +0.56%. Oil prices CL.1, +1.37% are also up and bitcoin BTCUSD, -0.84% is holding at $20,078.

The buzz

Meta shares META, -22.79% are down nearly 20% in premarket after the Facebook parent’s earnings earnings and revenue fell short of hopes, as it aped Alphabet GOOGL, -1.87% and Snap’s SNAP, -1.15% digital ad gloom. And Wall Street downgrades are trickling in.

Opinion: Facebook and Google grew into tech titans by ignoring Wall Street. That could lead to their downfall

Upbeat results have lifted shares of Caterpillar CAT, +7.78%, Merck MRK, +1.69%, McDonald’s MCD, +3.00%, Honeywell HON, +3.06% and Southwest LUV, +1.91%, which says its planes are fuller than before the pandemic. But Keurig Dr. Pepper KDP, -2.76% shares are down on a sharp profit drop.

And after the close, in addition to Apple and Amazon.com, Intel INTC, -1.27% and a few others will report.

The European Central Bank has made another jumbo 75-basis poin rate hike, as largely expected. A decision is due at 8:15 a.m. Eastern, followed 30 minutes later by President Christine Lagarde’s press conference.

Housing slowdown hits real-estate service group Zillow Z, +0.42%, which confirmed more layoffs.

A first look at third-quarter GDP showed a stronger-than-expected rise of 2.6%, above the 2.3% gain economists expected. Other data showed durable goods orders rising 0.4% in September. The latest weekly initial jobless claims data showed a 3,000 gain to 217,000. .

Elon Musk, facing a Friday deadine to complete his $44 billion Twitter TWTR, +1.13% purchase, reportedly told staff that he won’t slash 75% of the workforce. And he brought a kitchen sink:

Ford F, +0.74% will wind down its investment in soon-to-be closed self-driving startup Argo AI.

Credit Suisse CS, -19.01% is bringing back its First Boston name and cutting 9,000 jobs in a sweeping restructure as the Swiss bank posted a massive loss.

Best of the web

The war in Ukraine could hasten along cleaner energy, says a new report.

These Americans live with ghosts.

Global warming sees Bangldesh farmers revive a 200-year old technique

Yale professor predicts how the war in Ukraine will end

The chart

How surprising have tech earnings been? Check out this tweet by the Tao of Trading founder Simon Ree:

The tickers

These were the top-searched tickers on MarketWatch as of 6 a.m. Eastern:

Ticker	Security name
META, -22.79%	Meta Platforms
TSLA, +0.15%	Tesla
GME, +0.73%	GameStop
MULN, +2.24%	Mullen Automotive
NIO, -5.64%	NIO
AMC, +0.00%	AMC Entertainment
AAPL, -2.13%	Apple
BBBY, +1.97%	Bed Bath & Beyond
MSFT, -1.65%	Microsoft
TWTR, +1.13%	Twitter

Random reads

TikTok “Kia challenge” involving stealing a car leaves four teens dead.

Pope says online porn is a dangerous vice, and even nuns are doing it.

Need to Know starts early and is updated until the opening bell, but sign up here to get it delivered once to your email box. The emailed version will be sent out at about 7:30 a.m. Eastern.

Listen to the Best New Ideas in Money podcast with MarketWatch reporter Charles Passy and economist Stephanie Kelton.

Adblock test (Why?)

https://news.google.com/__i/rss/rd/articles/CBMieGh0dHBzOi8vd3d3Lm1hcmtldHdhdGNoLmNvbS9zdG9yeS93aHktdmFsdWF0aW9uLXJldmVyc2Fscy1mb3ItYmlnLXRlY2gtY29tcGFuaWVzLW1heS1qdXN0LWJlLWdldHRpbmctc3RhcnRlZC0xMTY2Njg2NzU4MtIBAA?oc=5

2022-10-27 10:46:00Z
1627875672