Market had a positive week despite Meta

Ed Mertiri |

TV Interviews with Erin Gibbs

Meta's (Facebook) disappointing Q4 report and its impact on US markets

Cheddar News

Overview of Amazon’s Q4 report

 

The US equity markets were up last week, despite Thursday’s huge decline propelled by a disappointing quarterly report by Meta (formerly Facebook). Both Thursday’s and Friday’s market action reveal just how much impact the mega caps now have on indices like the S&P 500. The YTD return difference between the S&P 500 Equal Weighted Index (equally weighted stocks) and the S&P 500 index (market capitalization-based weights) shows that the largest of the large caps are weighing on the performance of the S&P 500. The mega caps have been pulling the index down faster than the average stock return for most the year (see chart). This trend tends to be short term.

Meta (FB) disappointed investors on Thursday, with negative news on multiple fronts. The “priced for more than just perfection stock” price dropped by a whopping 26.4%, pulling the broader market down. Meta was 6th largest stock in the S&P 500 before Thursday, now it is the 7th.

Amazon’s (AMZN) positive report pushed the stock price up 14.4% Friday. This helped the S&P 500 and investor sentiment recover, retracing about a third of Thursday’s decline and finishing the week up 1.7%.

There’s still time for earnings reports to move the market. We can expect more volatility the next two weeks. Over half of the S&P 500 companies have reported so far but a few big names are left. The beat rate (percentage of companies beating Wall St consensus EPS estimate) is 78%, a little below the prior 4 quarter average 83%. 78% is still above the 5 year average of 72% and should be considered positive.

As usual investors are more focused on the future. One of the key data points developing this earnings season is that analysts have been revising 2022 profit growth upwards. It is significant that expected 2022 EPS growth has been revised up to 9.5% from 8.4% in just two weeks.

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