Hexo Corp. HEXO, +8.41% said Wednesday it is cutting 180 jobs, as part of the Canada-based cannabis company’s cost-cutting plan. The layoffs represent about 14% of the company’s workforce, which was about 1,277, according to the latest FactSet data. Half of the layoffs are result of the previously announced closure of its Stellarton facility, and the rest are related to the reduction of back-office positions.
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Gold futures climbed on Tuesday, shaking off pressure from strength in the U.S. dollar and Treasury yields, to stretch their gains into a third-consecutive session and mark their highest finish in almost three weeks.
U.S. stocks opened Tuesday trading mixed, with the Dow industrials rising on the back of early moves in Amgen Inc. AMGN, +7.82% and Goldman Sachs GS, +0.53%.
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Amazon, Apple, Facebook, Google and Microsoft collectively increased their profit more than 55% in 2021 from a base that was already a record, while sales grew 27% to a total that would make the companies a top-15 world economy
Big Tech headed into 2021 with more than nine months of pandemic experience, but were still surprised by the extent of supply-chain disruptions, labor shortages and rising prices.
Despite these challenges, their financial performance has been staggering: Google parent Alphabet Inc. GOOGL, +0.14% GOOG, +0.26%, Amazon.com Inc. AMZN, +13.54%, Apple Inc. AAPL, -0.17%, Facebook parent Meta Platforms Inc. FB, -0.28% and Microsoft Corp. MSFT, +1.56% individually and collectively put up record profit and revenue all around in 2021.
Collectively, the companies topped $1.4 trillion in revenue — which would rank 13th in gross domestic product as a nation, just behind Brazil and ahead of Australia, according to World Bank figures — and they generated $320 billion in profit based on Generally Accepted Accounting Principles (GAAP).
For some context on that profit figure: Apple, the most valuable company in U.S. history thanks to a series of amazing profits, took 37 years as a public company — 1980 through 2017 — to collect that much profit in total. Yet the iPhone manufacturer contributed the largest portion of 2021’s technology sector profit, topping $100 billion for the first time, a figure that itself eclipses the total profit Apple collected in its first three decades on the market.
Make no mistake, this is not normal. These five companies accounted for 17.8% of the S&P 500 index company profit in the first nine months of the year, according to Dow Jones Market Data, and grew their profit more than 55% from already-record earnings in 2020. Individually, some companies saw mind-boggling profit growth last year. Alphabet, for instance, made as much profit in 2021, $76 billion, as it had in 2020 and 2019 combined —and both of those years contained record profit for the search giant at the time.
One way to see how out of line this was from a historical perspective is to look at the companies’ net margins — only Facebook saw net margins decline in 2021 from the previous year, one of the reasons its stock has been hammered after reporting fourth-quarter earnings last week, including the biggest one-day market-capitalization decline in history. Apple and Alphabet saw huge spikes to record net margins in 2021, while Microsoft enjoyed its largest net margins since the dot-com boom went bust in 2001 and Amazon posted its biggest margin since 2004.
Those gains are expected to have an outsize effect on the S&P 500 index SPX, +0.52% as companies in the index collectively head for the highest net profit margin on record. In total, with nine months of reported results and a combination of reported fourth-quarter results and analysts’ estimates, S&P 500 index companies are expected to produce a net profit margin in 2021 of 12.21%. That would blow away previous numbers, which have largely been in single digits and topped out previously at 10.75%, according to Dow Jones Market Data.
Which S&P 500 sector has the widest profit margin ? The Information Technology sector, which is expected to jump from margins of roughly 19.5% in each of the past two years to 23.27% in 2021 and have the largest margin of any of the 11 S&P 500 sectors. Apple and Microsoft reside in that sector, while Facebook and Google are expected to push the Communication Services sector’s margins from 12.22% in 2020 to 16.08% in 2021.
While Big Tech’s annual sales growth of 27% is half of the sales-growth percentage, it is still nothing to sneeze at, if anyone would even think about sneezing at $1.4 trillion in annual revenue. Three of the five companies produced more than a quarter-trillion dollars in sales on their own in 2021, and Amazon came in near half a trillion, with $469.82 billion. That is more than Facebook’s total sales in its entire history.
While the financial performance of 2021 (and 2020, and 2019) were tremendous for Big Tech, the only thing Wall Street wants to know is if it will continue. And there are some worthwhile questions about that, even as the bulls continue to insist there is nothing but further gains ahead.
“The robust prints from tech titans Amazon, Apple, Alphabet, Microsoft, AMD AMD, +2.93%, and Qualcomm QCOM, +0.21% are starting to paint a clear growth story for the tech space in 2022 that we believe is very important for the Street going forward,” Dan Ives, a Wedbush Securities analyst, wrote in a note to clients on Friday.
But it’s feasible that the year 2021 could see peak growth for Big Tech. Right now, analysts expect that Facebook and Amazon will see declining profit this year, and growth rates are expected to slow dramatically across the board.
The outlook for the first quarter, as expected, was relatively weak, especially for Facebook, which lost a record $232 billion in market cap on Thursday after it warned of a whole host of “headwinds,” including competition from TikTok, the impact from Apple’s privacy changes on its advertising revenue, and overall macroeconomic constraints on advertising spending.
Only one of the Big Tech companies, Microsoft, provided a strong outlook for the first calendar quarter, and none of the companies provided a full annual outlook for 2022 as much doubt remains about the effects of the current storm of inflation, supply-chain disruptions, and labor shortages.
Apple gave a fudgy forecast that did not include any numbers, saying that its first calendar quarter of 2022 would see “solid growth” on a year-over-year basis. Analysts are looking for Apple to see about $93.6 billion in revenue in its fiscal second quarter, ending in March, for year-over-year growth of about 5%.
While Facebook struggled mightily with the changes in Apple’s iOS platform, which let iPhone users opt out of tracking by advertisers, Google has been able to circumvent those issues. Alphabet also rallied after the company announced a major 20-to-1 stock split, which will lower its stock price for retail investors, and make its stock potentially a Dow Jones Industrial Average DJIA, -0.06% component.
Alphabet’s YouTube business, however, was slightly disappointing to some analysts, who viewed it as also seeing increased competition from TikTok. And Google executives avoided any kind of forecast in their earnings reports and conference calls.
Other companies are signaling the end of the work-from-home pandemic boom in tech sector sales, after big earnings misses from Netflix Inc. NFLX, +1.13% and Peloton Interactive Inc. PTON, +1.44%. Life is slowly going back to normal as in person businesses have reopened, such as movie theatres and gyms, and as the Omicron wave of coronavirus dies down and spring arrives, it is likely we will see more people leave the digital lives they have relied on for the past two years for the physical world around them.
Nobody knows what is on the other side of the pandemic whose effects have obviously pushed consumers and businesses toward online services, cloud software and refreshed hardware, but there is no way to assuredly know that those gains will continue. It just as logical to assume that the huge gains of the past two years were pulled forward from the years ahead of us, which would then potentially be bleaker than currently expected. And regulators, who were already circling the companies after seeing their power, money and influence grow in recent years, are sure to keep the heat on.
Ives said that while he believes valuation multiples in tech will continue to compress as the Federal Reserve raises interest rates this year, he believes Wall Street is currently underestimating potential growth. But after the growth we just saw, it’s hard to believe the encore will top it, especially with antitrust concerns piling up. Then again, Big Tech is already doing things that seem impossible, so maybe they can continue to defy the odds.
Stocks dip in Tokyo, but surge in Shanghai after holiday layoff
Stock Markets
The equity markets continued to be volatile throughout the past week although overall gains were recorded for the second week in a row. Growth and value shares performed similarly while large-caps were outpaced by the medium and small-caps, a breakout of the pattern of value outperformance in place since November. There were 112 companies listed in the S&P 500 Index scheduled to release performance reports, making this one of the busiest weeks of the fourth-quarter earnings reporting season. Several large-capitalized stocks were included, thus driving the movement in broad benchmark indexes. Facebook’s stock price declined by 26% as a result of the announcement of a drop in its daily users and guidance for slower revenue growth. The event alone erased $232 billion off the company’s market capitalization on Thursday, a record-breaking development. On the other hand, a report of better-than-expected earnings for Amazon.com attributed to its Web services business bolstered the indexes back to higher levels on Friday. Among the sectors, energy outperformed the rest, building on their significant lead for the year. U.S. oil prices surged above $90 per barrel, mainly due to agreement among the major oil exporters to commit to a modest production increase despite the rising oil demand.
U.S. Economy
Good news on the economy accompanied last Friday’s release of the most recent monthly employment report. In the month of January, almost half a million (467,000) jobs, much higher than were expected, were added to the employment market. This is an optimistic development in the light of the omicron spread. It is a signal that the underlying labor market remains sufficiently robust to overcome the potential disruption posed by the current and future covid variants. There are signs that the worst of the coronavirus pandemic will end in January, and that public health conditions will continue to ease moving forward. Furthermore, the anticipated rate hike in March is generally accepted as a done deal and investors have discounted this development in the expectation that markets have recalibrated to a more aggressive monetary policy.
Also in January, the hospitality and leisure sectors reported a welcome growth in payrolls. These remained the last sectors to recover as a result of the lockdowns and mobility restrictions. The employment levels in this sector have still not recovered to their pre-pandemic levels, so a continued increase in hiring is expected as the economy continues to rebuild. Average hourly earnings have grown 5.7% on an annual basis, adding a positive note to the growth rate in consumer spending. There is a noticeable jump in the labor-force participation rate that has climbed to a new high post-pandemic amid the largest month-over-month increase in ten years. Posing a challenge is the continued labor shortage, although it is an optimistic sign that workers are eager to return to the labor force, possibly encouraged by the fading covid concerns and the lure of higher wages. Total employment is reported to be 1.7 million below the pre-pandemic level and is clearly on the road to better days ahead.
Metals and Mining
The gold market is presently at a standstill and failing to advance, but at least it maintains its level at $1,800 per ounce. Where it goes from here is uncertain. There are two equal but opposing forces impacting precious metals at present. The first is the escalating inflation which is the highest it has been in years. The second is the expectation that the Federal Reserve will adopt aggressive measures to cool down the overheating economy caused by the rising consumer prices. The workings of these two forces are keeping gold prices on hold. Investor surveys point to the likelihood that gold prices will remain stable at the current level, according to the London Bullion Market Association.
In the past week, spot gold price rose 0.93%, closing the previous week at $1,791.53 and this week at $1,808.28 per troy ounce. Silver began this week at the previous week’s close of $22.47 and ended Friday at $22.52 for a marginal rise of 0.22%. For platinum, the earlier week’s close at $1,013.50 ascended to $1,028.19 by week’s end, for a gain of 1.45%. Among the precious metals, palladium lost 3.57% of its value during the week, beginning at $2,378.88 and ending at $2,294.06 per troy ounce.
For the base metals, copper rose from $9,507.50 per metric tonne to close at $9,841.50, gaining 3.51% for the week. Zinc closed the previous week at $3,609.50 and this week at $3,612.50 per metric tonne for a sideways gain of 0.08%. Aluminum began at $3,082.50 and ended the week at $3,074.00 per metric tonne for a marginal loss of -0.28%. Lastly, tin commenced at the earlier week’s close of $41,684.00 and ended at this week’s close at $43,021.00 for an increase of 3.21%.
Energy and Oil
A severe winter storm that is moving across the U.S. has added another risk factor to the oil market. The storm has reached the Permian Basin and sparked concerns that potential supply disruptions may occur in the largest American shale source. Additionally, the OPEC+ commitments in its production increases into March 2022 have remained unchanged, signifying the inability or unwillingness of the group to meet rising demand. The Russian-Ukraine geopolitics add another dimension to the situation, prompting strong speculations that the $100 per barrel mark will soon be breached. Oil prices have been rising, bringing Friday’s Brent trading to $93 per barrel and the US benchmark WTI trending above $92 per barrel. In a 16-minute meeting, the OPEC+ signified that it would extend its 400,000 barrel per day increases into March 2022. The move ignores talks about continuous underperformance of production targets and depleting spare capacity.
Natural Gas
At most locations for the report week January 26 to February 2, natural gas sport prices rose. The Henry Hub spot price increased from $4.37 per million British thermal units at the beginning of the week to $6.44/mmBtu by the week’s end. International natural gas prices were mixed during the week. Along the Gulf Coast, prices rose ahead of forecasts of freezing temperatures. In the Midwest, prices increased in line with those at the Henry Hub, while in the West, prices climbed in response to cooler temperatures increased consumption, and reduced supply. The U.S. natural gas supply was relatively flat this week, although U.S. natural gas consumption fell across all sectors. U.S. LNG exports fell by three vessels this week compared to last week’s exports.
World Markets
European equities fell after Christine Lagarde, President of the European Central Bank (ECB) issued comments that implied the likelihood of a possible rate increase this year. The pan-European STOXX Europe 600 Index closed the week down 0.73% while major indexes likewise slid lower. Although Italy’s FTSE MIB Index posted modest gains, France’s CAC 40 Index descended 0.21% and Germany’s Xetra DAX Index dropped 1.43%. The UK’s FTSE 100 Index saw a 0.67% gain. The core eurozone bond yields climbed on worries about inflationary pressures and the potential of a change in the accommodative policies of the ECB. Peripheral eurozone bond yields aligned with the core yields. Gilt yields moved higher on the back of an increase in interest rates by the Bank of England (BoE), the second such increase since December.
In Japan, the stock markets rose for the week on optimism that the government could present a policy by next week on potentially easing the ban on the entry of foreign nonresidents into the country. The Nikkei 225 Index rose 2.70% while the broader TOPIX Index gained 2.86%. The rally occurred late in the week, led by stocks that were likely to benefit from an economic reopening as a result of the lifting of the ban. The report failed, however, to detail what measures will be eased. With regards to monetary policy, the Bank of Japan (BoJ) reassured the markets that there were no plans to modify the current accommodative policy, boosting broad sentiments. Despite consumer prices remaining low, other major central banks are under inflationary pressure to raise interest rates and tighten monetary policy. This is fueling speculation that the BoJ will eventually be forced to follow suit. The yield on the 10-year Japanese government bond rose to 0.20% this week from 0.17% at the end of the preceding week. This is the highest level since the BoJ began its negative interest rate policy in January 2016. The exchange rate of the yen to the U.S. dollar strengthened to JPY 114.91 from the previous week’s JPY 115.26.
China’s financial markets remained close for the weeklong Lunar New Year celebration. In economic news, a moderation in factory production and services was indicated by government purchasing managers’ surveys for January. There was a decline in the official manufacturing Purchasing Managers’ Index (PMI) from December’s 50.3 reading to 50.1, while the nonmanufacturing rating, which measures construction and services sectors activity, dipped from 52.7 to 51.1. Expansion is separated from contraction at the 50.0 mark. Smaller private firms struggled last month in China’s manufacturing sector, as evidenced by the Caixin/Markit Manufacturing PMI for January which fell to its lowest level since February 2020. In addition, there was more evidence of falling sales in China’s property sector, which continues to suffer from its cash crunch that began last year.
The Week Ahead
For the week ahead, expect consumer credit, inflation, and jobless claims to be among the important economic data to be released.
Key Topics to Watch
Markets Index Wrap Up
Wall Street Rallies to Records After Inflation Slows
US Inflation Eased Last Month in the First Slowdown of 2024
Meme Stocks Are Roaring Again. This Time May Be Different
Fed’s Powell Downplays Potential for a Rate Hike Despite Higher Price Pressures
International Business Machines (NYSE:IBM) Trading 0.3% Higher
Exxon Mobil (NYSE:XOM) Trading Down 0.3%
Salesforce (NYSE:CRM) Trading 2.4% Higher
Coca-Cola (NYSE:KO) Stock Price Up 0.1%
Chile’s Capital Faces Fiercest Cold Snap in Decades
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