OPINION
Market Rating Before FOMC MeetingJan 31
What to Watch as Q1 2022 Earnings Season Begins
Volatility increases in the US markets
Consumer inflation in the United States is at around 8.5 percent, the peak of the last 40 years. While rising rates threaten the US economy, the Fed increased interest rates for the first time in three years In order to ensure price stability. The Fed, which increased its policy interest rate by 25 basis points to the range of 0.25 – 0.50 percent, in March, signaled new increases, and also said that the balance sheet could be narrowed by 95 billion per month.
Following the data and developments in the last month, Fed members want to increase the tone of monetary tightening. Many Fed members, especially St. Louis Fed President Bullard, want a 50 basis point rate hike at the May meeting, which Fed Chair Powell noted in his recent statements that this possibility is on the table. However, knowing that interest rate hikes are a process, the markets accelerated the exit from 10-year Treasuries and caused rates to converge to 3.0 percent levels. Accordingly, a total of 250 basis points rate hike is expected to be made throughout the year, affecting the recent price movements in the markets. The strengthening possibility of a 50 basis point interest rate hike in the first four upcoming meetings also led to tough sales in the US shares.
Q1 Earnings Results
Sales resulted from the expectations form the Fed and slowdown in Chinese economy create strong pressure on shares. Although the markets want to breathe a little with the start of the balance sheet season, the disappointment caused by Netflix (NFLX) fueled the sales in the last week.
In the first quarter of the year, the company's net profit decreased by 6 percent compared to last year to $ 1.6 billion. However, the most notable aspect of the announced balance sheet was that the total number of subscribers decreased for the first time in 10 years. While the market expectation was that Netflix would gain 2.5 million subscribers in the first quarter of the year, a decrease of 200 thousand subscribers caused Netflix to lose about 25 percent. Transition to real life following the quarantine measures and the sharing of user accounts were shown as the reasons for the company's worsening balance sheet.
The Tesla Effect
Unlike Netflix, Tesla's balance sheet announced for the first quarter of the year set a new record. Despite the supply problems that started with the chip crisis, the company, which achieved a 255 percent increase in net profit compared to the same period last year, had a record of 3.7 billion USD. When we look at its revenue for the same period, its annual increase of 81 percent to 18.8 billion USD indicates that it exceeded the market expectation of 17.85 billion USD.
A Busy Week
Although the markets will try to breathe in supportive statements from the Chinese officials, the balance sheets of large-scale US companies will continue to be released. First, we will see Google (Alphabet) (GOOGL) and Microsoft (MSFT) data on Tuesday.
There is a mixed mood in the markets for Google's balance sheet to be announced for the first quarter of 2022. Despite analysts pointing out that there may be a contraction in advertising revenues during this period, those who argue that the strong momentum in the last quarter of 2021 can be maintained are increasing volatility in GOOGL. Revenues are expected to increase by 23 percent to reach $ 68.2 billion compared to the first quarter of last year. However, it is said that profit per share may decrease from $ 26.29 to $ 25.65 for the first time after 7 quarters.
Looking at Microsoft, it is expected that the company, which gained exceptional earnings in pandemic period, will be able to record the least increase in profit per share after 7 quarters. Microsoft, which has achieved significant revenue growth from cloud and software services, is expected to increase its profit per share from $ 1.95 to $ 2.18 and revenues by 17.5 percent to $ 49.0 billion due to the fact that it increased its focus on the gaming sector in the first quarter of the year.
Wednesday
Faced with intense competition, Meta Platforms (FB) lost momentum at the rate of user growth as Generation Z popularized Snapchat once again. In addition, sanctions implemented on Russia will badly affect advertising revenues in the upcoming balance sheet.
These developments are expected to reduce profit per company by about 30 percent compared to the same period of the previous year to $ 2.56 in the tables that we will meet on Wednesday. Earnings, on the other hand, are expected to be $28.22, up by a modest 8 percent in the period.
Top Companies
Expectations from Apple (AAPL) in comparison with other companies are quite optimistic. In contrast to supply shortages and shutdowns in China, revenues earned from iPhone 13 and other products are expected to boost revenues to $94 billion this quarter. It is calculated that the average profit per share will be $ 1.43.
On Twitter (TWTR), the agenda is quite busy. The importance of the next set of balance sheets has increased after Elon Musk bought shares in the company for $ 44 billion. Twitter application, which was used quite extensively during the pandemic period, was very active especially in the US elections. The company, which is expected to provide strong advertising revenues during this period, is expected to generate revenue of $ 1.23, an 18 percent increase compared to the first quarter of 2021. However, the possibility of a decrease in profit per share to $ 0.002 is also on the agenda.
Finally, e-commerce giant Amazon.com do not reflect clear forecasts. The company, which has had a mixed performance most of the time, was negatively affected by the disruption in its supply chains in the first quarter of 2022. Market expectations are that profit per share will be $ 8.13, down 48.5 percent compared to the same period last year. And it is estimated that Amazon's revenues for this period will increase by about 7 percent year-over-year to $ 116.3 billion.
In general, this week will be very important for US shares. Balance sheets, which are generally below market expectations before the Federal Reserve's May meeting, may strengthen stagflation expectations. In addition, if “Sell in May and Go Away” coincides with this setting, it can create panic sales in the stock markets. However, lack of a new risk for the markets, which we believe digested a 250 basis point rate hike of the Fed throughout 2022, and the strong performance of the balance sheets may start a return from the bottom for shares.
Consumer inflation in the United States is at around 8.5 percent, the peak of the last 40 years. While rising rates threaten the US economy, the Fed increased interest rates for the first time in three years In order to ensure price stability. The Fed, which increased its policy interest rate by 25 basis points to the range of 0.25 – 0.50 percent, in March, signaled new increases, and also said that the balance sheet could be narrowed by 95 billion per month.
Following the data and developments in the last month, Fed members want to increase the tone of monetary tightening. Many Fed members, especially St. Louis Fed President Bullard, want a 50 basis point rate hike at the May meeting, which Fed Chair Powell noted in his recent statements that this possibility is on the table. However, knowing that interest rate hikes are a process, the markets accelerated the exit from 10-year Treasuries and caused rates to converge to 3.0 percent levels. Accordingly, a total of 250 basis points rate hike is expected to be made throughout the year, affecting the recent price movements in the markets. The strengthening possibility of a 50 basis point interest rate hike in the first four upcoming meetings also led to tough sales in the US shares.
Q1 Earnings Results
Sales resulted from the expectations form the Fed and slowdown in Chinese economy create strong pressure on shares. Although the markets want to breathe a little with the start of the balance sheet season, the disappointment caused by Netflix (NFLX) fueled the sales in the last week.
In the first quarter of the year, the company's net profit decreased by 6 percent compared to last year to $ 1.6 billion. However, the most notable aspect of the announced balance sheet was that the total number of subscribers decreased for the first time in 10 years. While the market expectation was that Netflix would gain 2.5 million subscribers in the first quarter of the year, a decrease of 200 thousand subscribers caused Netflix to lose about 25 percent. Transition to real life following the quarantine measures and the sharing of user accounts were shown as the reasons for the company's worsening balance sheet.
The Tesla Effect
Unlike Netflix, Tesla's balance sheet announced for the first quarter of the year set a new record. Despite the supply problems that started with the chip crisis, the company, which achieved a 255 percent increase in net profit compared to the same period last year, had a record of 3.7 billion USD. When we look at its revenue for the same period, its annual increase of 81 percent to 18.8 billion USD indicates that it exceeded the market expectation of 17.85 billion USD.
A Busy Week
Although the markets will try to breathe in supportive statements from the Chinese officials, the balance sheets of large-scale US companies will continue to be released. First, we will see Google (Alphabet) (GOOGL) and Microsoft (MSFT) data on Tuesday.
There is a mixed mood in the markets for Google's balance sheet to be announced for the first quarter of 2022. Despite analysts pointing out that there may be a contraction in advertising revenues during this period, those who argue that the strong momentum in the last quarter of 2021 can be maintained are increasing volatility in GOOGL. Revenues are expected to increase by 23 percent to reach $ 68.2 billion compared to the first quarter of last year. However, it is said that profit per share may decrease from $ 26.29 to $ 25.65 for the first time after 7 quarters.
Looking at Microsoft, it is expected that the company, which gained exceptional earnings in pandemic period, will be able to record the least increase in profit per share after 7 quarters. Microsoft, which has achieved significant revenue growth from cloud and software services, is expected to increase its profit per share from $ 1.95 to $ 2.18 and revenues by 17.5 percent to $ 49.0 billion due to the fact that it increased its focus on the gaming sector in the first quarter of the year.
Wednesday
Faced with intense competition, Meta Platforms (FB) lost momentum at the rate of user growth as Generation Z popularized Snapchat once again. In addition, sanctions implemented on Russia will badly affect advertising revenues in the upcoming balance sheet.
These developments are expected to reduce profit per company by about 30 percent compared to the same period of the previous year to $ 2.56 in the tables that we will meet on Wednesday. Earnings, on the other hand, are expected to be $28.22, up by a modest 8 percent in the period.
Top Companies
Expectations from Apple (AAPL) in comparison with other companies are quite optimistic. In contrast to supply shortages and shutdowns in China, revenues earned from iPhone 13 and other products are expected to boost revenues to $94 billion this quarter. It is calculated that the average profit per share will be $ 1.43.
On Twitter (TWTR), the agenda is quite busy. The importance of the next set of balance sheets has increased after Elon Musk bought shares in the company for $ 44 billion. Twitter application, which was used quite extensively during the pandemic period, was very active especially in the US elections. The company, which is expected to provide strong advertising revenues during this period, is expected to generate revenue of $ 1.23, an 18 percent increase compared to the first quarter of 2021. However, the possibility of a decrease in profit per share to $ 0.002 is also on the agenda.
Finally, e-commerce giant Amazon.com do not reflect clear forecasts. The company, which has had a mixed performance most of the time, was negatively affected by the disruption in its supply chains in the first quarter of 2022. Market expectations are that profit per share will be $ 8.13, down 48.5 percent compared to the same period last year. And it is estimated that Amazon's revenues for this period will increase by about 7 percent year-over-year to $ 116.3 billion.
In general, this week will be very important for US shares. Balance sheets, which are generally below market expectations before the Federal Reserve's May meeting, may strengthen stagflation expectations. In addition, if “Sell in May and Go Away” coincides with this setting, it can create panic sales in the stock markets. However, lack of a new risk for the markets, which we believe digested a 250 basis point rate hike of the Fed throughout 2022, and the strong performance of the balance sheets may start a return from the bottom for shares.
