While the two remaining megatechs in Amazon and Alphabet (Google) report this week, their December quarter figures are likely to be overshadowed by the continuing volatility in equities as the short sellers v small online punters battle plays out.
Some investors are growing concerned that wild swings in GameStop and other stocks driven by these small-time traders could be fresh signs of overheating in equities that warn us a broader sell-off could be around the corner.
GameStop shares closed up 400% for the week after the video game chain’s stock became a battleground between retail traders and Wall Street hedge funds and other shorters.
Some analysts are increasingly worried this battle – which has captured larger companies like American Airlines (which have been heavily shorted stocks) – is a warning sign of an overheating market rally based on Federal Reserve support, another stimulus package from the Biden administration and expectations that vaccines against COVID-19 will help the US economy rebound later this year.
The frenzied trading dominated the news on Wall Street last week, even as Apple Inc, Microsoft Corp and other corporate heavyweights reported record quarterly results.
After initial strength, the shorting battle saw Apple shares decline 3.74% on Friday while Microsoft fell 2.92%.
Overall, Stocks had a rough week, with the S&P 500 down 3.3% to 3,714. The S&P lost 1.1% for January, its first negative month since October. Nasdaq enjoyed a rise in January.
Buoyant earnings had helped Wall Street up to midweek when the shorting battle and publicity about the mass of small, on line investors hit the public eye with a 2% slide on Wall Street.
That was followed by another on Friday, and now the earnings reports to come will battle to make headway.
Of the 184 companies in the S&P 500 that have reported earnings through Friday morning, 84.2% have topped analyst expectations, well above the 75.5% beat rate for the past four quarters, according to data from Refinitiv (once part of the Reuters financial and news group).
The AMP’s Chief Economist, Dr Shane Oliver wrote in his weekend note that as a result of these better than expected figures “ onsensus earnings expectations are getting revised up and are likely to end up back at pre-covid levels.”
And the FactSet financial data group wrote on the weekend that At this point in time, more S&P 500 companies are beating EPS estimates for the fourth quarter than average, and beating EPS estimates by a wider margin than average.
“As a result, the index is reporting higher earnings for the fourth quarter today relative to the end of last week and relative to the end of the quarter.
“Despite the increase in earnings, the index is still reporting a year-over-year decline in earnings, mainly due to the negative impact of COVID-19 on a number of industries within the index.
“But, if earnings continue to surpass estimates at current levels, it is possible the index will report year-over-year earnings growth for the quarter for the first time since Q4 2019.
Besides Amazon and Alphabet, also due to report this week are News Corp, Genworth, the New York Times, Meredith, Hershey, Lee Enterprises, peabody Energy, Yum Brands, PayPal, Qualcomm, Amgen, Exxon Mobil, ConocoPhillips, Pfizer, UPS, Merck and Ford.
