For all the worries about tech companies and the threat of regulations, one of the best supporting points for the stocks was the strength of their underlying businesses. Despite suffering some losses in share price over the last couple of months, Facebook showed yesterday why the FANGS still look like a good buy. Net income in the first quarter was up 63% versus last year to $5 bn. Earnings per share was up 25% versus estimates. Revenue also jumped 49% versus last year.
FINSUM: Despite all the controversies, Facebook’s advertising business continues to rake in cash by the truckload.
Stocks have managed to turn around from their dire condition of a couple weeks ago, and from last week, have rallied well. So, what has driven the turn around, investors are probably asking. According to Barron’s, part of it is earnings, but there is more to the story. The apparent answer is that market breadth and sentiment are improving across the board, which is helping provide positive momentum. It also isn’t hurting that earnings have been strong across the board.
FINSUM: We think the more positive sentiment is just from a lack of bad news on the trade war front. No news is usually good news in such a situation and fear ebbs so long as no new developments are released.
If you are looking for a sign of how bank earnings might be doing, look no further than Goldman Sachs. Goldman has struggled over the last several quarters as its trading business has failed to generate much revenue because of the broad lack of volatility over the last couple of years. However, in a divergence from the norm, this quarter is supposed to be very strong because of the volatility that has hit markets. One of the big x-factors in the earnings will be how Goldman’s proprietary investments perform.
FINSUM: If Goldman does well it will bode well for the rest of the banks, especially because other trading divisions will likely see a pick up too.
While the market has not been doing so well this year and there are many warning signs, there are some positives too. One great sign for markets is that earnings are very strong. First quarter earnings season looks to be a great one, but what will that do for the markets? This year is supposed to be the best for earnings growth since 2010, but that is exactly the problem—great earnings this year have been forecasted for a while because of the strong economy and tax cuts. That means all the risk appears to be to the downside rather than the upside.
FINSUM: We think this round of earnings have little margin for error as everyone is expecting them to be great.
Barron’s put out a very troubling article today. The piece contends that even great earnings are not going to save the current market rout. The reason why is two part. Firstly, worries about the broader economy, and things like regulation of tech, are overwhelming the influence of strong earnings. But secondly, markets have seen these good earnings coming for a year, and have already priced them in. Therefore, strong numbers’ influence on investors is weak. In fact, the good earnings are more of a risk than a boost at the moment, as any underperformance could cause a big bout of selling.
FINSUM: This makes perfect sense to us. Everyone has seen these earnings coming from a mile away and has been betting on them for a year. They definitely have more risk than upside right now.