The most important companies have never been more important: Morning Brief

Myles Udland
·Markets Reporter
·5 min read

Friday, October 30, 2020

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It is the FAANG’s market. We just live in it.

Anyone following markets over the last few years is familiar with the FAANG stocks — Facebook (FB), Amazon (AMZN), Apple (AAPL), Netflix (NFLX), and Google parent company Alphabet (GOOGL).

Toss in Microsoft (MSFT) and you’ve got four companies with market caps north of $1 trillion, the world’s largest social network, and the most important media business of the last decade.

And this group has also never been more important to the overall direction of the market.

This year, the S&P 500 (^GSPC) is higher year-to-date, up about 2.5% through Thursday’s close. The index’s performance so far this year might come as a surprise given the pandemic, the resulting recession, record declines in GDP, soaring unemployment, and an overall challenging outlook for business around the world.

But the reason stocks remain higher is because of the performance we’ve seen from these big tech giants.

Data from Bespoke Investment Group published Thursday showed that through Wednesday’s close, this group of stocks is up 7.19% this year, against a 5.44% drop for the rest of the benchmark index. In other words, there is a 12.63% performance spread between these cohorts, the largest we’ve seen since at least 2013.

Since 2013, the ‘FAAMNG’ group of stocks has been positive for the year, while the rest of the benchmark index dropped three times — 2015, 2018, and now 2020. In 2015 and 2018, however, the benchmark index declined for the full-year. How 2020 shakes out, of course, remains to be seen.

And so against this backdrop, the news we got from four of these giants after Thursday’s market close becomes all the more important for the overall market.

Following last night’s close, Apple, Amazon, Facebook, and Alphabet all reported quarterly results.

And for the most part, these earnings reports were pretty darn good.

Facebook, Amazon, and Alphabet topped estimates across the board, outlining how these companies have benefitted from pandemic-induced trends pushing ever more economic activity online. And investors anticipating that these companies would benefit from these trends has been a major part of why this group of stocks have outperforming the market this year.

It also explains why there’s been little tolerance for any company that doesn’t meet expectations —which brings us to Apple.

In the company’s fiscal fourth quarter, Apple earned more per share and brought in more revenue than Wall Street forecasts, earning 73 cents per share on revenue of $64.7 billion. But in one key area, the company was a bit light relative to estimates — iPhone sales.

Revenue from Apple’s flagship device totaled $26.44 billion in the most recent quarter, a bit short of the $27.1 billion that analysts were expecting. And looking across the globe, it appears much of this weakness came from China, where revenue dropped 29% in the fourth quarter.

Following these results, Apple shares fell 4.4% in the after hours, and U.S. stock futures slid.

And, yes, Apple CEO Tim Cook said in the company’s earnings release that the initial response to the iPhone 12 has been “tremendously positive.”

But in an environment where expectations are high and the entire market’s performance has been propped up by a select group of stocks, the margin for disappointing investors grow ever slimmer.

By Myles Udland, reporter and co-anchor of The Final Round. Follow him at @MylesUdland

What to watch today

Economy

  • 8:30 a.m. ET: Personal income, September (0.4% expected, -2.7% in August)

  • 8:30 a.m. ET: Personal Spending, September (1.0% expected, 1.0% in August)

  • 8:30 a.m. ET: PCE Deflator month-over-month, September (0.2% expected, 0.3% in August)

  • 8:30 a.m. ET: PCE Core Deflator month-over-month, September (0.2% expected, 0.3% in August)

  • 8:30 a.m. ET: PCE Core Deflator year-over-year, September (1.7% expected, 1.6% in August)

  • 8:30 a.m. ET: Employment Cost Index, third quarter (0.5% expected, 0.5% in August)

  • 9:45 a.m. ET: MNI Chicago PMI, October (58.0 expected, 62.4 in September)

  • 10:00 a.m. ET: University of Michigan Sentiment, October (81.2 expected, 81.2 in September)

Earnings

  • 6:30 a.m. ET: Honeywell (HON) is expected to report adjusted earnings of $1.49 per share on revenue of $7.66 billion

  • 6:55 a.m. ET: Colgate-Palmolive (CL) is expected to reported adjusted earnings of 70 cents per share on revenue of $3.99 billion

  • 6:45 a.m. ET: Chevron (CVX) is expected to report an adjusted loss of 27 cents per share on revenue of $25.15 billion

  • 7:00 a.m. ET: Altria (MO) is expected to report adjusted earnings of $1.15 per share on revenue of $5.56 billion

  • 7:00 a.m. ET: Charter Communications (CHTR) is expected to report adjusted earnings of $3.08 per share on revenue of $12.07 billion

  • 7:35 a.m. ET: Exxon Mobil (XOM) is expected to report an adjusted loss of 26 cents per share on revenue of $48.49 billion

  • 7:45 a.m. ET: AbbVie (ABBV) is expected to report adjusted earnings of $2.77 per share on revenue of $12.75 billion

  • 7:45 a.m. ET: GoodYear Tire & Rubber Co. (GT) is expected to report an adjusted loss of 8 cents per share on revenue of $3.4 billion

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Starbucks reports fiscal Q4 earnings beat, better-than-expected same-store sales [Yahoo Finance]

Ant Group's IPO sees record $3 trillion in retail demand [Reuters]

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