Monster Moves by Tech - Your Money February 3rd 2023

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We know there is an old saying on Wall Street that states, “as goes January…so goes the rest of the year” and we also have records going back to the 1950’s that show the third year of a Presidential election cycle is usually the strongest, but in our opinion, January might just have overdone it a bit. Last week, the Bank of Canada announced another quarter point rate hike and then placated investors by indicating it would pause on further rate hikes pending the impact of the massive series of interest rate increases. That set the doves into a frenzy with predictions of rate cuts starting in the second half of this year which of course would be great news for stocks especially the high PE growth names. That in turn set the stage for outsized moves into the mega cap tech stocks ahead of their earnings. It didn’t really matter if year end numbers came in light, the prospects of falling borrowing costs sent the bears into hiding as buyers jumped back in with the belief that earnings will recover.

Flash forward to this week. On Wednesday, Fed Chair Jay Powell raised rates another quarter point, stared straight in the camera and said more increases are coming. Logically speaking, higher rates reduce profitability that in turn should lead to lower stock prices. NOPE. The Nasdaq jumped 232 points and the S&P rose 60 points. Now in fairness, Meta aka Facebook, reported a big revenue beat and a $40 Billion share buyback and drove the stock up 20%. But then on Thursday morning, the European Central Bank and the Bank of England responded with a half point rate hike with forecasts of additional hikes to counter inflationary pressure on their side of the pond. We cannot say we were surprised given the overflowing restaurants and airports in Germany and Italy we witnessed last October.

On top of the overseas news, after the market closed, the big three “A’s” reported earnings that were less than stellar. Alphabet down 3%, Amazon off nearly 9% and Apple, well it jumped 2.25%. Never mind that on a year over year basis, Total sales fell from $123.4 Billion down to $117.2 Billion. Meanwhile total operating expense rose from $12.7 Billion to $14.3 billion or that earnings per share fell from $2.11 to $1.89. In fairness to Apple, factory disruptions in China clearly derailed their growth curve and judging from stories of pent-up demand, hardware sales will likely rebound in the coming quarters. Still the stock jumped 3.5% before the earnings came out followed by another 2.27% afterwards. Is this 2021 or Déjà vu all over again.  Personally, you might want to read the conservative guidance issued by Microsoft last week before you jump in with both feet.

Meanwhile, Exxon Mobile reported record profits of $56 Billion or $13.26 per share which means the company is trading at 10.5 times earnings with a 3.25% dividend. The stock closed down nearly $4 dollars this week. One could argue the price of crude oil all but collapsed this week ahead of the upcoming Russian oil cap or that in the event of a significant downturn, demand for energy would definitely feel the cutting edge of a slowdown. But that did not really jibe with the monster jobs report in the US today. The US added over 500,000 new workers last month which means the US economy is still far from rolling over and yet crude dropped $2.49 today. Unfortunately, that caused the TSX energy sub index to fall 5.75% this week and edged out the 5% collapse in gold stocks.

In summary, sometimes markets do not trade logically, and this week seems to be one of those times.

Happy trading and stay safe.

Steve Bokor and the Ocean Wealth Team.

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Steve Bokor

Steve Bokor

Portfolio Manager