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S&P 500 to Look Elsewhere for Support After Disappointing Earnings

S&P 500 to Look Elsewhere for Support After Disappointing Earnings

Peter Hanks, Strategist

Talking Points:

  • Amazon and Google narrowly missed on revenue but posted stellar earnings per share
  • Intel delivered a beat across the board and subsequently traded higher in after-hours
  • Given the current equity climate, the mixed results could prove troublesome in tomorrow’s session

After US equities staged a rather significant rebound Thursday, three of the country’s largest technology companies reported third quarter earnings after the close. FANG members Amazon and Alphabet (Google’s parent company) were accompanied by Intel and many investors were hopeful they could provide the spark needed for markets to rebound further.

Tech stocks and the broader NASDAQ index have been a pillar of the recent growth realized by US equities but have fallen significantly in October's rout along with the broader markets. Still, FANG remains healthily in the green. Conversely, Wednesday’s decline saw the broader indexes effectively surrender their gains for the year-to-date.

Tech Stocks Have Lost Their Luster

NASDAQ versus google amazon and intel on earnings

Amazon

Amazon boasts the largest market capitalization of the three companies reporting this Thursday and the second largest in the US overall. Unfortunately for Amazon, a high valuation comes with high expectations. Following a slight miss of those expectations, Amazon faltered after-hours.

The online retailer narrowly missed revenue expectations, reading $56.6 billion versus $57 billion. Earnings per share (EPS) beat the expected $3.11 with a hefty $5.75. Amazon shares traded 4% lower in after-hours trading. Although the third quarter data was nearly on target, forecasts for the fourth quarter seem to have been the deciding factor in the market’s response.

Amazon Price Chart October 25th

S&P 500 to Look Elsewhere for Support After Disappointing Earnings

Chart provided by MarketWatch

Amazon reported fourth quarter forecasts for sales in the range of $66.5 billion to $72.5 billion. Even the top end of the range is a rather significant miss compared to analyst expectations of $73.8 billion. The tempered growth forecast is likely attributable to rising prices from trade wars coupled with increased competition. Further, explosive growth has been a hallmark of Amazon and is rightfully woven into the share price. Signs that this growth may be slowing could result in a harsh reassessment of Amazon’s valuation.

Alphabet

The second company to report was Google’s parent company, Alphabet. Alphabet also narrowly missed on revenue and delivered a beat on EPS. Third quarter revenue came in at $33.74 billion versus the expected $34 billion. Earnings per share read $13.06 versus $10.45 expected. Given the large profit surprise on relatively light revenue, Alphabet shares fared much better in after-hours trading. At the time of this article, Alphabet traded 2% lower.

Alphabet Price Chart October 25th

S&P 500 to Look Elsewhere for Support After Disappointing Earnings

Chart provided by MarketWatch

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Intel

The only company to deliver a beat across the board was Intel. Versus a forecasted EPS of $1.15, actual earnings read in at $1.40. Revenue came in at $19.2 billion, also beating out the forecasted $18.13 billion. Following the report, Intel shares enjoyed a 3.25% bump in after-hours trading. Coupled with Thursday’s climb, the shares are up 7.5% from Wednesday’s close.

Intel Price Chart October 25th

S&P 500 to Look Elsewhere for Support After Disappointing Earnings

Chart provided by MarketWatch

S&P 500, Dow, NASDAQ Outlook for Friday

In the current equity climate, the disappointing performances from the mega-caps of Amazon and Google may deliver another tumultuous trading session on Friday. Amazon’s sales forecast in particular will weigh on investor sentiment and likely add to concerns of future growth for US corporations on a broader scale.

Notable earnings continue next week with auto manufacturers Ford, General Motors and Daimler accompanied by tech-giant Apple.

--Written by Peter Hanks, Junior Analyst for DailyFX.com

Contact and follow Peter on Twitter @PeterHanksFX

Read more: USD Price Action Setups as Dollar Bulls Stampede Through Resistance

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