1. Tech earnings: Wall Street investors will turn their attention toward Silicon Valley this week. Four of the five most valuable technology companies in the world — Apple (AAPL), Amazon (AMZN), Microsoft (MSFT) and Facebook (FB) — are all set to report earnings.
In previous years, optimism ran high for the tech industry’s seemingly limitless potential to sell more products and ads to consumers. Now, warning signs are everywhere.
Apple unofficially kicked off the tech earnings season at the beginning of this month with a stark warning that it would miss its revenue target for the final quarter of 2018 because of weak iPhone sales, which it mostly attributed to a slowdown in China.
The announcement shook Apple’s stock and the overall market, reigniting fears that even corporate giants may be weighed down by broader challenges in the global economy. That includes the trade war between the United States and China.
Intel (INTC) added to those concerns last Thursday when it reported disappointing results. On a conference call with analysts, Intel (INTC)’s interim CEO Bob Swan noted that “trade and macro concerns, especially in China, have intensified.” Separately, Intel (INTC) updated its list of risk factors to include the possibility of a “recession or slowing growth.”
“We continue to believe the China tariff talks and tensions remain a black cloud over the tech space as evidenced with Intel’s comments,” Daniel Ives, an analyst with Wedbush, wrote in an investor note Friday.
The tech sector’s problems don’t stop there.
With Democrats now firmly in control of the House of Representatives, this year could see an increase in hearings and attempts to regulate tech companies like Facebook.
Amazon, meanwhile, spooked investors in October by forecasting weaker sales for the holiday quarter than investors expected. Since then, the conversation has turned to a new unknown for the company: how the divorce of founder and CEO Jeff Bezos could impact his stake in, and control over, the company.
And then there’s Microsoft, which regained its title as the most valuable company in the world during the final quarter of 2018 in part by avoiding the recent regulatory and hardware sales troubles of its industry peers.
Now the question is whether Microsoft can stay on top. Central to Microsoft’s success of late is its big bet on the lucrative cloud computing market. Azure, Microsoft’s cloud business, did see growth slow somewhat in the three months ending in October, but Ives says Microsoft still appears to be “gaining share” against the market leader, Amazon.
2. Missing economic reports: Even though the government is reopening, the economic reports due out this week could still be delayed. Fourth quarter GDP is scheduled for Wednesday and a report on personal income and outlays is due out Thursday. But employees returning to work may have to finish collection and analysis of the data before publishing the reports.
3. The jobs report: Investors will still get the January jobs report, which is scheduled for Friday. It’s published by the Department of Labor, which remained funded during the shutdown. The agency has said furloughed government workers, as well as those working without being paid, will be counted as employed because they will receive backpay once the government reopens. Economists expect 168,000 new jobs, 3.9% unemployment and 3.2% wage growth.
4. Just how ‘patient’ is the Fed: The Federal Reserve statement and Jerome Powell’s press conference Wednesday are likely to signal the central bank is on hold for now due to slowing growth. Financial markets erupted late last year due in part to fears the Fed is raising interest rates too rapidly.
Two major questions remain: Will the Fed statement explicitly state that officials will be “patient” about future rate hikes? Such wording would telegraph no rate hike for at least the next two meetings, according to HSBC. And will the statement say the Fed is willing to tweak or even halt the winddown of the balance sheet? Some investors believe the Fed’s shrinking balance sheet is contributing to market turbulence.
5. GE (GE)’s great expectations: After a horrendous past two years, GE (GE) shares are up a stunning 21% so far in 2019. The rally reflects hopes that under new CEO Larry Culp, GE (GE) has finally turned a corner.
But the hype will be difficult to live up to when GE reports results Thursday. GE Power keeps bleeding cash. Land mines continue to lurk at GE Capital. And that’s on top of lingering investigations from the SEC and Justice Department.
6. Coming this week:
Monday — Caterpillar (CAT) earnings
Thursday — Amazon, GE and UPS (UPS) report earnings