Earnings recession is becoming more apparent
Updated
Following the FOMC’s rate hike, markets continued to rally yesterday until the closing bell when tech giants Alphabet, Amazon, and Apple reported their earnings. Bleak numbers poured cold water on a rally, and in after-market trading, Nasdaq 100 index fell more than 2.5%. However, this move quickly recovered, highlighting the market's growing fragility. With VIX near yearly lows and now evident earnings recession, we will seek a decline in volume accompanying the rising price to suggest a rally’s exhaustion.
During the summer of 2022, we noted that declining corporate earnings and outlook downgrades in 3Q22 and 4Q22 would confirm our bearish thesis about the market progressing deeper into recession. With this being reflected in the data, we will pay very close attention to labor market data, which lags behind other indicators. To further confirm our bearish thesis, we want to see a pick-up in unemployment and small business bankruptcies, which will put the current mainstream narrative about “soft-landing” to the test (together with the FED not cutting rates).
Alphabet - full-year 2022 results.
Net income = $59.97 billion
(vs. net income of $76.03 billion in 2021; -21.1% YoY)
Operating income = $74.84 billion
(vs. $78.71 billion in 2021; -4.9% YoY)
Revenue = $282.83 billion
(vs. $257.63 billion in 2021; +9.8% YoY)
Alphabet disclosed that it expects to incur (in 1Q23) employee severance and related charges of $1.9 billion to $2.3 billion in relation to its layoffs of 12 000 people announced in January 2023. Additionally, it anticipates exit costs in regard to office space reductions of approximately $0.5 billion during that same quarter. Furthermore, the company expects a significant reduction in the depreciation of its equipment and servers throughout the entire year 2023.
Amazon - full-year 2022 results.
Net loss = $-2.7 billion
(vs. net income of $33.4 billion in 2021; -108% YoY)
Operating income = $12.2 billion
(vs. $24.9 billion in 2021; -51% YoY)
Net sales = $514 billion
(vs. $469.8 billion in 2021; +9.4% YoY)
Amazon saw a massive drop in net income (YoY) in 2022, from $33.4 billion to a net loss of $2.7 billion. The company expects its net sales to drop by more than 15% in 1Q23 (vs. the previous quarter) and suffer unfavorable impacts from exchange rates.
Apple - 1st quarter FY2023
Net income = $29.98 billion
(vs. $34.63 billion a year ago; -13.4%)
Net sales = $117.2 billion
(vs. $123.9 billion a year ago; -5.4% YoY)
Operating income = $36.01 billion
(vs. $41.48 billion a year ago; -13.2% YoY)
Illustration 1.01
Illustration 1.01 shows the daily chart of NQ1!. At the moment, the price deviated too far from its 20-day and 50-day SMAs, making a case for the retracement. A breakout below Support 1 will bolster the bearish odds in the short term. Contrarily, a breakout above Resistance 1 will be bullish.
Technical analysis
Daily time frame = Bullish
Weekly time frame = Bullish
Illustration 1.02
Illustration 1.02 displays the daily chart of QQQ. The yellow arrow hints at bullish volume growth. A decline in volume accompanying the rising price will hint at declining momentum and potential trend reversal.
Please feel free to express your ideas and thoughts in the comment section.
DISCLAIMER: This analysis is not intended to encourage any buying or selling of any particular securities. Furthermore, it should not be a basis for taking any trade action by an individual investor. Therefore, your own due diligence is highly advised before entering a trade.
During the summer of 2022, we noted that declining corporate earnings and outlook downgrades in 3Q22 and 4Q22 would confirm our bearish thesis about the market progressing deeper into recession. With this being reflected in the data, we will pay very close attention to labor market data, which lags behind other indicators. To further confirm our bearish thesis, we want to see a pick-up in unemployment and small business bankruptcies, which will put the current mainstream narrative about “soft-landing” to the test (together with the FED not cutting rates).
Alphabet - full-year 2022 results.
Net income = $59.97 billion
(vs. net income of $76.03 billion in 2021; -21.1% YoY)
Operating income = $74.84 billion
(vs. $78.71 billion in 2021; -4.9% YoY)
Revenue = $282.83 billion
(vs. $257.63 billion in 2021; +9.8% YoY)
Alphabet disclosed that it expects to incur (in 1Q23) employee severance and related charges of $1.9 billion to $2.3 billion in relation to its layoffs of 12 000 people announced in January 2023. Additionally, it anticipates exit costs in regard to office space reductions of approximately $0.5 billion during that same quarter. Furthermore, the company expects a significant reduction in the depreciation of its equipment and servers throughout the entire year 2023.
Amazon - full-year 2022 results.
Net loss = $-2.7 billion
(vs. net income of $33.4 billion in 2021; -108% YoY)
Operating income = $12.2 billion
(vs. $24.9 billion in 2021; -51% YoY)
Net sales = $514 billion
(vs. $469.8 billion in 2021; +9.4% YoY)
Amazon saw a massive drop in net income (YoY) in 2022, from $33.4 billion to a net loss of $2.7 billion. The company expects its net sales to drop by more than 15% in 1Q23 (vs. the previous quarter) and suffer unfavorable impacts from exchange rates.
Apple - 1st quarter FY2023
Net income = $29.98 billion
(vs. $34.63 billion a year ago; -13.4%)
Net sales = $117.2 billion
(vs. $123.9 billion a year ago; -5.4% YoY)
Operating income = $36.01 billion
(vs. $41.48 billion a year ago; -13.2% YoY)
Illustration 1.01
Illustration 1.01 shows the daily chart of NQ1!. At the moment, the price deviated too far from its 20-day and 50-day SMAs, making a case for the retracement. A breakout below Support 1 will bolster the bearish odds in the short term. Contrarily, a breakout above Resistance 1 will be bullish.
Technical analysis
Daily time frame = Bullish
Weekly time frame = Bullish
Illustration 1.02
Illustration 1.02 displays the daily chart of QQQ. The yellow arrow hints at bullish volume growth. A decline in volume accompanying the rising price will hint at declining momentum and potential trend reversal.
Please feel free to express your ideas and thoughts in the comment section.
DISCLAIMER: This analysis is not intended to encourage any buying or selling of any particular securities. Furthermore, it should not be a basis for taking any trade action by an individual investor. Therefore, your own due diligence is highly advised before entering a trade.
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Rising unemployment foreshadows big trouble for the U.S. economy and acts as another recession signal.
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