The years 2020 and 2021 seem to be long ago for the most volatile stocks in the market, in which relative valuation multiples twice the current ones have been validated, and Investors preferred large technology companies (“FAAMNG”) and the most cyclical, banks and growth of any sector, and where the IPO of companies with large losses has been massive.
It also validated what could not be validated, because money was abundant and paper money printing hid any doubts that might arise. The world had to be saved from the pandemic.
But the effects were not long in coming. Today, inflation is unstoppable (8.2% in the United States and 10.7% in the eurozone) and undermines the confidence of consumers, producers and investors. The economic impact of the violent rise in reference interest rates that central banks are running to counter it results in a recession in Europe and an early recession in the United States with uncertain effects in the rest of the world.
The market valuation of the S&P 500 index relative to earnings over the past 12 months has increased by up to 35 times and has now fallen to just 18 times. The technological ones had even more breadth. Is it time to buy? Not yet. And we saw why this week, when the Federal Reserve reaffirmed its tightening stance on monetary policy.
Oil appears to be in a microclimate and is recovering for the second consecutive year: an island in the desert. All other sectors are punished, but one in particular: technologywhich had enjoyed the best returns in the aftermath of the pandemic, in a more digital and physically disconnected world.
What’s happening to tech companies? From star to star: The performance of high-potential companies on the stock market is highly dependent on their rate of growth, which is slowing, in many cases even year after year. The rate increase is a discount on the present value of expected future cash flows. Furthermore, they are usually companies that do not pay dividends, such as Amazon, Meta (Facebook) or Tesla.
Big tech companies are having a hard time in the market because in some cases their profits have been below market estimates or because their sales have slowed. Microsoft exceeded expectations, but reported that a decline in PC sales and a strong dollar continued to weigh on earnings and growth, and announced there could be complications in the coming months.
In the case of Alphabet (Google), the slowdown in sales growth continued as YouTube suffered from the global decline in online advertising. The first thing that gets cut in crises is advertising. Meta Platforms (Facebook) was the cuckoo this year, with a 73% drop in its price– His profits are exactly half of what they were a year ago and he warned of short-term selling problems.
Reality Labs, the unity of the metaverse, has been heavily questioned: In the last quarter, revenues were halved (only $ 285 million) while losses were $ 3.7 billion. The market is asking for a change of course, as happened with Netflix.
Apple had one of the strongest balance sheets, reflecting the pricing power it wields, thanks to the brilliance of its brand, its products and the relative wealth of its customer base, but it fell short of the major categories of products. Business unit and iPhone services.
Amazon is a large virtual supermarket and largest cloud host – it missed revenue estimates, and even web services that were growing strongly disappointed.
Markets will continue to be volatile due to the rate hike. Some companies have dropped very low in relative valuation and many are seeing when they will hit the low. But don’t be in a hurry. The volatility is not over.
Source: Clarin
