Major tech earnings, Q3 GDP: What to know in the coming week?

Major tech earnings, Q3 GDP: What to know in the coming week?

This week's trademark earnings and economic data announcements will mainly take place later in the week, with much of the Big Tech or FAANG (Facebook, Amazon, Apple, Netflix and Google's parent, Alphabet) holdings announcing earnings after the close of the market on Thursday. Also Thursday morning, on the economic data front, the Bureau of Economic Analysis will issue the first print on the U.S. Gross Domestic Product ( GDP) third quarter, providing a first holistic glance at the turnaround in economic growth that took place following lockdowns in late spring.

Gains from Major Tech

The run-up of Major Tech stocks has slowed considerably in the months after these firms last recorded earnings in the summer. Since July 30, Amazon (AMZN) has underperformed the wider market, rising by 5 per cent relative to the S&P 500 by 6.8 per cent. Alphabet (GOOG, GOOGL) tracked in line with the S&P 500, while Facebook (FB) and Apple (AAPL) each won about 19 percent during the same period. Ahead of these business earnings, Snap (SNAP), the parent company of the fading photo-sharing app, reported third-quarter results that blew estimates and set the bar high for ad-driven tech firms. Revenue rose by more than 52 per cent when the firm gained more than 11 million active users per day in the third quarter, with a growth of 19 per cent. “The set-up for Thursday 10/29 when all four report is getting more challenging post SNAP, but we expect the ‘rising tide’ of e-commerce use and DR [direct revenue] advertising to broadly justify stock moves,” Daniel Salmon, BMO Capital Markets analyst, said Friday in a report. “We like GOOGL most into the [quarterly reports] as it has the worst sentiment and investors know travel is still bad; we believe retail strength can offset, while recovery of brand advertising and a burgeoning Connected TV story at YouTube are under-appreciated,” he continued. Last quarter, Alphabet 's shares sold off following the company's first-ever decline in sales, when customer firms cut their promotional budgets during the pandemic. “As we go into 2021, we also think investors will return more attention to the cloud businesses of GOOGL and our #2 preference in this group, AMZN, which is the only one for which we raised ad revenue growth in both 2020 and 2021,” Salmon added. Amazon, for its part, posted record profits in the second quarter as net profits doubled to $5.2 billion, boosted by a rise in online shopping at the height of stay orders. The company's earnings this week would preclude any windfall from its annual Prime Day shopping holiday, which was delayed by three months this year to October due to the pandemic and took place at the end of the third quarter. Facebook is also expected to report on the heels of a successful second-quarter, during which sales soared 11 percent to $18.7 billion as ad spending started to speed up in May and June as standing orders were lifted. However, the easing of lockdowns is also expected to decrease user interaction on the site, as people have established alternatives to social media scrolling: In July, the company announced that it projected active users to be average on a daily and monthly basis and to be "stable or marginally lower in most regions during the third quarter." While the company was boycotted by some of the big advertisers at the beginning of the quarter, a number of Wall Street analysts indicated that the overall recovery in online ad spending from mid-summer to early fall likely offered a significant boost to Facebook's results. Bank of America analysts said in a note on Friday that they predicted third-quarter results in the above-noted consensus estimates considering the "robust" online ad turnaround based on their advertisement controls. Analysts expect Facebook to increase its sales growth to 14 per cent over the third quarter , compared to a median expectations of 12 per cent to $19.8 billion. Finally, Apple's revenues are projected to be largely stable last year at $64 billion, after an 11 percent leap in the second quarter led by Mac and iPad revenues earlier in the year. The company launched its new 5G-enabled iPhone 12 almost a month later than average due to the virus, with observers likely to be in close proximity to the company's outlook for cell phone revenue over the holiday season. Each of these earnings reports also arrives as Washington is rising the investigation of some of the biggest Internet giants. The Department of Justice and 11 States filed an anti-trust case against Google last week, accusing the search and advertisement business of an unconstitutional monopoly. And the CEOs of Twitter, Alphabet and Facebook are expected to testify before the Senate Committee on Commerce, Science and Transport on Wednesday morning to address Section 230 of the Communications Decency Act, which has aimed to shield web sites from responsibility for user-made content.

Q3 GDP

U.S. GDP is forecast to grow by a record amount in the third quarter over the second quarter, after a pandemic-induced lockdown and rest-in-place orders that contributed to the worst-ever one-quarter decline in economic activity earlier this year. Third-quarter GDP is forecast to grow at a seasonally adjusted annualized rate of 31.8 per cent, according to Bloomberg data as of Friday, following a 31.4 per cent fall in the second quarter. Consumer spending and residential housing are likely to be the strong points in the study, considering the strength of both retail and housing market reports over the summer. Retail revenues rose during each of the three months of the third quarter and, most recently, rose at a rate of 1.9 per cent in September, or twice the consensus forecast for the month. Thursday's study is expected to show that personal consumption — which accounts for about two-thirds of domestic economic activity — rebounded by 38.7% following a 33.2% decline in the previous period. For at least the first month of the third quarter, unemployed Americans were already getting an increase of $600 a week in federal unemployment compensation, providing an extra amount of spending assistance in addition to $1,200 stimulus checks carried out earlier in the spring. “Stimulus checks and expanded unemployment benefits have significantly boosted household incomes, which likely fueled a rapid recovery in consumer durable goods spending. Low mortgage rates and a need for more livable space has likewise generated a swift bounce-back in home sales and residential construction,” Wells Fargo economists, led by Jay Bryson, wrote a report on Friday.  “Business investment has also likely turned up, although nonresidential construction is still weak alongside rising vacancy rates and depressed drilling activity in the oil and gas sector.” While this third quarter of GDP print will take a detailed look at the period from July to September, investors are mostly still looking forward. To that end, jitters about whether another COVID-19 wave might occur during the winter, along with speculation regarding the election result and timing of another virus relief bill, have drawn attention to investors. “Overall, the fact that 3Q will be an impressive quarter (on the heels of significant damage in 2Q) is already baked in the cake,” RBC Capital Markets analysts posted a report on Friday. “Going forward, we find significant uncertainty in growth given the wide dispersion of potential COVID outcomes. As we highlighted in a recent note, our range of possible 4Q GDP outcomes spans from -7% to +7%” Source: finance.yahoo.com