Yesterday was a trader’s dream come true if you were looking for big movement! And if you don’t know what we’re talking about, clearly you weren’t following Facebook (FB) yesterday. The question is how much face the company still has after the ignominious distinction of losing more money on a given day than any other publicly traded company ever. Here are the figures. At the closing bell on Wednesday, its market cap was $630 billion. A day later, a slimmed down company worth $510 billion. What we saw yesterday, a frantic sell-off that knew no bounds, led to a $120 billion loss on market cap, the largest such loss in a single trading day by a whopping margin of $30 billion. The second biggest loss was $90.7 billion, or a 22% drop on the part of Intel at the heart of the dot-com bubble. That was on September 22, 2000. In the same era, Microsoft shed $80 billion on April 3, 2000. That, then was a 14.5% drop in its stock price. And as we’ve noted time in and time out, with reporting companies, and especially high-flying tech plays, more than anything, what’s fueling inflated stock prices is expectation rather than actual valuations. It’s the future potential that these companies bring to the table that warrant valuations far higher than many other sectors, and when there’s a miss, the pain is felt, like salt poured on an open wound. Facebook’s drop of $120 billion yesterday is a figure so stunning because of the value that was simply obliterated, hedge funds cringing at the very numbers. That $120 billion is more than the individual market caps of 464 companies on the S&P 500.
And on the flipside, there’s Amazon (AMZN), a company that also has a hyperbolic PE but which continuously succeeds in justifying it, its web services growing at a meteoric rate. Outstripping earnings projections yesterday afternoon, Amazon rose nearly 4% in after-hours trading. At sales of $52.9 billion, it missed expectations of $53.35 billion, but nonetheless, EPS of $5.07 trounced expectations of $2.49. Net sales for Amazon Web Services (AWS) surged to $6.1 billion, from $4.1 billion in the parallel period in 2017.
One firm, Credit Suisse, was especially bullish on Amazon recently, analyst, Stephen Ju noting, “The largest category opportunities that still lie ahead for Amazon remain those that are non-homogeneous and require greater service level and handling – namely groceries, home improvement/furniture and apparel, which are 3%, 4% and 20% online penetrated, with $846 billion, $392 billion and $300 billion in dollars remaining offline in the U.S.”
Another noteworthy company in yesterday’s late trading was Intel (INTC), which fell more than 4%, even though it beat projected numbers. Despite the revenue and earnings beat, the company was punished, a constant theme of late. There is little way to know in advance how the market will react to any company’s numbers. For Intel, it was the news that it would delay future chip technology that sent it sliding.
Today, last but not least it’s going to be GDP numbers that will be the dominating force. Trump and Co. vying for credit for recent growth, it’s hard to tell how much of the number stems from inventory accumulation and heightened sales to beat out tariff imposition. Overseas players rushing to buy up stock before levies were put into place, it could very well be that the uptick was more of a blip than anything with lasting power. Add to that that GDP could be revised downwards, and even though Trump is creating more and more buildup to tout his tax cuts and build the case for future ones, it’s unclear really where the economy is heading. If GDP does grow too quickly for the Fed’s liking, we are going to see 2 more rate hikes this year to quell inflationary forces, and if the growth numbers are not a true indicator for prospects of future growth, premature rate hikes could jar the economy, causing economic contraction. Over and beyond that, GDP numbers will affect bond prices today; expectations for 2 rate hikes could send bond prices lower, increasing yields and diminishing the attractiveness of stock securities. The interplay of all of these factors is fantastic – and complicated – but today, hands down, we’re going to see GDP figures moving the Dow, S&P 500, and NASDAQ, as well as the U.S. dollar and treasury prices.
In the words of Janney Montgomery Scott’s fixed-income strategy chief, Guy LeBas, “I can’t remember the last time the markets placed such importance on a #GDP number as they have with tomorrow. Given the perceived optimism, a miss could catch rates violently offside (i.e., rally risk).” White House economic adviser, Larry Kudlow, was pushing the number, “You’re going to get a very good economic growth number tomorrow. Big.”
In brief, keep your finger on the pulse! Watch GDP, carefully. And look at Facebook, following the movement there. It’s going to be a big day on many fronts, with a lot of policy moves dictated by the tenor of today’s growth numbers and how they’re framed and perceived by players at the Fed, the White House and top market analysts.
Economic Calendar: Gross Domestic Product (GDP) numbers will be released at 8:30. A significant economic indicator – especially in light of recent trade hikes and the ongoing trade war – the number is expected to move markets today. Also key, keep your eyes trained on consumer sentiment numbers at 10:00.
Market Summary: Though the blue-chip Dow ended up 0.44%, the S&P 500 and the NASDAQ ended off, the NASDAQ taking the bigger hit of the two. The S&P 500 shed 0.30%, the NASDAQ tumbling 1.01%.
Hot Stocks: EA, TEAM, SAM, CMG, INTC, EXPE, AMZN
IPOs: DAVA, OPRA
Have a great trading day