Focus on Apple and Tesla earnings as the Nasdaq 100 falls into a technical correction
NASDAQ 100 FORECAST: Neutral
- The Nasdaq 100 index has fallen more than 10% from December’s high as earnings season approaches
- Investors fear rising wage inflation and Fed rate hikes will dampen earnings outlook
- Earnings from Apple, Tesla and Microsoft are in focus this week, setting the tone for the Nasdaq 100
The Dow Jones, S&P 500 and Nasdaq 100 indices consolidated in early 2022, weighed by rising Treasury yields and expectations that the Fed could launch a rate hike cycle from March. US inflation hit a four-decade high of 7% in December, raising concerns about wage inflation and its ramifications on corporate profits.
Rising prices had a negative impact on bank profits. While some have managed their spending well, others have not. JPMorgan, Citibank and Goldman Sachs highlighted rising spending in their earnings call as rising labor costs squeezed net profit margins. The financial sector generally underperformed last week, setting a sour tone for the broader market. Netflix also disappointed investors by giving much lower than expected guidance for new subscribers in the next quarter.
Looking ahead, about 22% of S&P 500 companies are reporting results this week. These include big names in technology such as Apple, Microsoft and Tesla, which represent approximately 6.2%, 5.2% and 2.2% of the S&P 500 Index weighting respectively. Therefore, their results are likely to have an outsized impact on market sentiment and set the tone for the Nasdaq 100 index.
Source: Bloomberg, DailyFX
According to Factset, the S&P 500 is expected to post an overall earnings growth rate of 21.8% year over year for the fourth quarter, marking the fourth consecutive quarter of earnings growth above 20%. The real growth rate could be even higher because the majority of business america tends to give conservative EPS forecasts with the aim of creating positive surprises when actual results are released. Higher EPS readings can effectively lower the price-to-earnings (PE) ratio for the S&P 500, Nasdaq 100 and Dow Jones, dampening their downside potential.
Key U.S. Earnings EPS Forecast – Weeks 25-28
January Source: Bloomberg, DailyFX
- EPS of $1.903 and revenue of $119.2 billion expected for the fourth quarter
- Apple May Highlight Supply Chain Challenges Due to Omicron’s Impact on Factory Operations
- Demand for the iPhone 13 remains robust, but the company’s ability to fulfill orders remains uncertain
- Services revenue is expected to remain strong and could offset some of the weakness on the product side of the business
- Apple is trading at 29.34 times earnings (P/E), well above its five-year average of 22.51
- EPS of $2.316 and revenue of $50.88 billion expected for the fourth quarter
- The degree of sales outperformance may ease as the company reports results, with growing businesses facing a tougher backdrop in the fourth quarter
- Sales in the cloud sector could slow as the recent increase in Covid-19 cases means a drop in demand from customers in the service sector
- Activision’s proposed acquisition will be in the spotlight during the earnings call
- Microsoft is trading at 36.47 times earnings (P/E), above its five-year average of 27.5
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- EPS of $2.309 and revenue of $16.6 billion expected for the fourth quarter
- It could be another good season for sales, as the company’s shipments jumped about 87% from a year ago in the fourth quarter.
- Product demand is robust as Tesla is likely to remain BEV’s top pick for most of 2022
- A potential delay in the launch of the Cybertruck, a shortage of semiconductors and supply chain problems will be in focus
- Tesla is trading at 320 times earnings (P/E)
— Written by Margaret Yang, Strategist for DailyFX.com
To contact Margaret, use the Comments section below or @margaretyjy on Twitter