There’s going to be some nervous investors in Australia and elsewhere after Wall Street veered off script this morning.
Wall Street and European markets rebounded solidly after Wednesday’s sell-off and then the quarterly reports from Amazon and Alphabet (Google) underwhelmed and their share prices fell sharply in after-hours trading, despite registering solid gains during regular trading.
The Aussie market was up more than 70 points in futures trading, before the detail in the two quarterlies (which were very solid indeed) became known.
A third quarterly from the giant chipmaker, Intel, was also solid and showed no signs of the problems that hit rivals AMD and Texas Instruments earlier in the week.
Now investors in Australia, Asia, and Europe will have to wait to see the US reaction to the Amazon and Alphabet quarterlies is a result of nerves or something more substantial.
The Dow rose 475 points, or 1.9%, to end at 25,054, the S&P 500 index was up 62 points, or 1.7%, at 2,718, while the Nasdaq jumped 247 points at 7,355, a rise of 3.6%. But all three were higher during the session, with the Nasdaq showing a gain of well over 4% at one stage.
Thursday’s rebound did not recover the 2.4% slide in the Dow on Wednesday, nor did the S&P 500’s rise cover the 3.1% slump and Nasdaq’s gain was short of the 4.4% slump the day before.
Shares in Amazon dropped 7.3% in after-hours trading after the internet company issued a disappointing fourth-quarter forecast, despite topping forecasts for third-quarter earnings. The shares had been up 7% in regular trading. In fact the after-hours trading losses accelerated in the brief session – the shares had been down 5.7% earlier.
Such is the febrile nature of investor sentiment that investors said ‘ho-hum’ to the third quarter earnings and revenue report from Amazon – Net income was $US2.9 billion, compared to just $US256 million in the same quarter of 2017. Net sales in the third quarter soared by 29% year-on-year to $US56.6 billion, but this missed the analysts forecast for $US57.1 billion (which is really nitpicking)
What drove the shares lower was the 4th quarter forecast (Amazon’s biggest with the Thanksgiving-Christmas sales period included. Amazon said it expected net sales to grow between 10% and 20% to between $US66.5 billion and $US72.5 billion, which was lower than some analysts had estimated. Wall Street had been forecasting growth of about 22% in the holiday sales quarter to $US73.8 billion.
Operating income was forecast at between $US2.1 billion and $US3.6 billion in the fourth quarter, compared with $US2.1 billion in the same period in 2017. That estimate helped send the shares sharply lower after hours.
With Alphabet Inc (Google) it was a similar story – OK third-quarter report, but weak on revenue. The shares were up 4.2% in regular trading but crashed 6% after hours before a small recovery saw them down 4.8%. The company reported third-quarter net income of $US9.19 billion, compared with $US6.73 billion, in the same quarter of 2017.
Revenue rose to $US33.74 billion from $US27.77 billion, but after deducting what are called Traffic Acquisition Costs (or TACs) Alphabet’s third-quarter revenue was $US27.16 billion against forecasts for revenue of $US27.32 billion, excluding TAC.
Analysts are likely to be cautious about these and other quarterlies while they await the report next week from Apple on November 1 (and Facebook as well the day before). Apple shares fell 1.6% in regular trading but were up 2.2% in after-hours dealings – a hint that investors didn’t see anything to worry about for the company from the Amazon and Alphabet reports.
The first estimate of US third-quarter GDP is out tonight and is expected to be around 3% to 3.2% from the 4.2% in the second quarter. Anything lower could worry investors – anything stronger will see nerves rise about the next fed interest rate rise in mid-December.
