22nd October – 28th October 2022 | Another week in the markets
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This week the UK gets its first prime minister of colour, Big Tech stocks take a hit in a weak earnings season, and China sees the biggest single-day exit of international investors from the domestic stock market in years.
- Hong Kong’s Hang Seng stock market index sees its biggest one-day decline since 2009 after Chinese President Xi Jinping asserts his unrivalled authority in a recent policy meeting
- Rishi Sunak, Britain’s first prime minister of colour, becomes the country’s third prime minister in less than two months as it faces economic and political turmoil
- Meta’s stock plunges more than 23% as the company sees declining revenues in the face of heavy investments in the metaverse
- Big Tech, such as Amazon, Alphabet, and Microsoft, reports weak quarterly earnings showing less resilience to the economic downturn
- Elon Musk finally closes the $44 billion Twitter deal, fires the CEO and other top executives, and shares his vision for Twitter becoming the digital town square
Taking stock | Farewell, Hang Seng | Colonial flip | Metaworse | Big Tech’s small bucks | Cagebreak complete | Invest wisely
Despite weak earnings of tech companies, Wall Street closed the week sharply higher. This was in part due to encouraging economic data that points towards slowing inflation and in part due to solid earnings outside of tech – companies like Chevron and Exxon Mobil beat estimates. For the week, the Dow rose 5.72%, S&P climbed 3.95%, and Nasdaq gained 2.24%. This has also been one of the best months in the history of the Dow.
Farewell, Hang Seng
On Monday, Hong Kong’s Hang Seng index saw its biggest one-day decline, falling 6.4% and closing at its lowest level since April 2009. Here’s how the three main indices of China performed on Monday:
Foreign investors pulled out around $2.5 billion from China’s stock market on Monday, and this sell-off resulted from Chinese leader Xi Jinping cementing his control over the ruling communist party in its meeting over the weekend. During the middle of this key meeting, Hu Jintao, Xi Jinping’s predecessor, was escorted out allegedly at Xi’s instructions. While the Chinese media stated that this was due to Hu’s ill health, international investors saw it as a deliberate power play by Xi to reiterate his authority.
On Tuesday, Rishi Sunak stepped in as UK’s new prime minister amid the country’s economic and political crisis. Sunak is the UK’s first prime minister of colour and the country’s youngest leader in modern times, as he takes office at the age of only 42. He is also one of the wealthiest politicians – Sunak and his tech heiress wife’s combined net worth of about $844 million is more than that of King Charles III. Before Sunak got into politics in 2015, he worked as a hedge fund manager. Sunak is currently exploring public spending cuts of up to $57.84 billion as well as tax increases to steer the country out of its profound economic crisis.
On Wednesday night, Meta, the parent company of Facebook, reported its third-quarter earnings, which missed Wall Street estimates by a wide margin. By Thursday morning, Meta stock plunged 23.4%, and the company shed almost a quarter of its market value. Meta’s declining revenue and falling share prices can be attributed to the heavy investments in the company’s virtual reality platform and technology, the “metaverse”.
About a year ago, when Zuckerberg rebranded Facebook as Meta, his personal net worth was about $142 billion, and he was the third wealthiest person in the world. Since then, his net worth has been slashed by more than $100 billion and as of this week it’s about $36 billion. In addition to investors’ scepticism about the metaverse, the company is also facing fierce competition from other social media platforms such as TikTok. Meta’s stock is down by over 50% this calendar year. As an investor, this may be a good time to do your research and invest in Meta if you also believe in Zuckerberg’s vision of the metaverse being the future of the internet.
Big Tech’s small bucks
Apart from Meta, other tech giants, including Amazon, Microsoft, and Alphabet, also released quarterly results this week, revealing a weak earnings season for Big Tech.
- Google’s parent company, Alphabet’s earnings, showed slowing sales growth for the fifth consecutive quarter and a drop in YouTube’s advertising revenue for the first time.
- Microsoft reported a 14% decrease in net profits and said it expects to see a significant decline in personal computer sales.
- While Amazon’s sales for the third quarter increased 15% from a year earlier, it posted a weak revenue forecast for the current quarter. This shocked the investors as the Oct-Dec quarter is traditionally the company’s biggest quarter, given holiday shopping. Amazon’s stock fell 13% in premarket trading.
- Both Microsoft and Amazon reported a greater-than-expected slowdown in their cloud computing business as companies and individuals look to cut back on spending.
- Apple was one of the few tech giants whose profit and revenue both topped Wall Street targets. However, the company’s holiday quarter forecast was grim, with an 8% expected drop in revenue growth.
With earnings missing estimates and growth forecasts lowered, tech stocks are proving to be less resilient to the slowing economy and rising cost pressures than expected by investors.
Elon Musk finally closed his $44 billion Twitter deal on Thursday and tweeted ‘the bird is freed’. The company will be delisted from the New York Stock Exchange (NYSE) on 8th November, becoming a private company, and the shareholders will receive $54.20 a share. Musk has already fired the social media platform’s top executives, including the CEO Parag Agarwal and CFO Ned Segal. With Musk’s vision of the app becoming a ‘digital town square’ and the company’s privatisation, the platform will most likely have lesser moderation and open source algorithms to increase trust.
With market doomsday predictions on the rise, it’s important to take some steps to ensure that your portfolio is resilient. One such key step is diversification. You should look at diversifying across asset classes – equity, debt, gold, etc., as well as diversifying across geographies. This is because the timing and the intensity of economic downturns in different countries are not perfectly aligned. To diversify your portfolio, download the Appreciate App and invest in promising US-based stocks and ETFs.
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