If the market believed that its operations were disrupted due to the global pandemic, Apple’s stunning set of numbers confirmed that it had things in control.
The decline in profit has been the worst in over a decade for Wall Street. Income for companies is expected to fall about 35 percent at a time when the rally seen in July has been the best in 10 years. Thanks to results from some tech companies that positively surprised the market, the Nasdaq closed another week of gains, its fourth in the last five.
From its close of 10,363 last week, Nasdaq gained 382 points or 4 percent to close at 10,745. S&P 500 gained 56 points for the week, closing at 3271 on July 31 while Dow slipped marginally, losing about 40 points for the week. S&P 500 gained for the fourth consecutive month.
Traders who had bet on the earnings of the leading tech stocks – Amazon, Apple, and Facebook – stood out with their earning numbers. A day after Apple announced its numbers, the stock was up over 10 percent, turning the tech giant into the most valuable company in the world.
One measure of how the results have surprised the markets explains it all. Before the results announcements started, Q2 profit was expected to fall 44 percent. The expectation has now fallen to 35 percent. The emerging consensus in the market now seems to indicate that the second quarter could be trough for profit growth.
Blowout tech results
If the market believed that its operations were disrupted due to the global pandemic, Apple’s stunning set of numbers confirmed that it had things in control. $59.69 billion was the highest ever revenue in the second quarter, 11 percent Y/Y, against the $52.25 billion expected.
Facebook did better as well with its quarterly revenues at $18.7 billion, against the average expectation of $17.3 billion. Its profit for the quarter doubled. Facebook said after the results that its revenues continue to grow in line with the 10 percent growth seen during Q2, confirming its value with the small investors around the world.
Alphabet reported a profit slightly ahead of analysts’ expectation but it witnessed its first-ever Y/Y revenue decline, as the advertising industry has been hit by the global slowdown. Search revenue was down 9.8 percent compared to last year while its cloud business registered a blowout 43 percent Y/Y growth.
Amazon’s results confirmed the impressive growth seen during Q2, with revenue hitting $88.91 billion vs $81.56 billion expected in a survey of analysts. Grocery sales went up 3X, forcing it to build capacities not expected till 2021.
With strong results and growth from tech firms, not just Apple and Facebook, Nasdaq 100 has added $4 trillion in value since the low seen in March. The tech-driven rally has catapulted the index 53 percent during the period.
Q2 GDP falls off the cliff
As had been expected, the second-quarter GDP growth fell 32.9 percent, a fall that has no parallel in history. Consumer spending, which accounts for nearly 70 percent of US GDP, collapsed during the period.
The 19-member Eurozone saw their GDP contract by 12.1 percent, pushing Germany, France and Italy into a recession. During the first quarter, the Eurozone had reported a 3.6 percent fall in GDP. Eurostat has suggested it could look worse when the final numbers are ready.
While the fall in Q2 GDP data was expected, July was the first month when European markets registered the first monthly drop after March.
Markets will be closely monitoring the rising number of cases across the Atlantic in the coming weeks. The U.S. has reported 154,000 deaths while some European countries are witnessing what could be a second wave of infections.
After the results, it is back to a hard grind for the markets.