One of the major indices, the S&P 500, is down more than 2% for the week. Those losses are accompanied by two earnings reports from consumer behemoths, Walmart Inc WMT and Target Corporation TGT, which showed higher fuel costs, higher wages and supply chain constraints denting profits amid the highest inflation in the last four decades.
Despite consumer demand being high and companies getting away with passing off higher production costs via higher prices, the S&P 500 is sliding into bear market territory amid fears the Fed will hike interest rates at a rate that will send the U.S. into a recession.
The most recent fall Thursday in the S&P 500 puts the index on the edge of an official bear market, tumbling 18.7% from its Jan. 3 highs of 4,796. If it falls an additional 1.3% showing a 20% fall from the highs, it enters an official bear market.
What about FAANG stocks? The stocks that are accountable for 13.02% of the total weight of the S&P 500, or 14.9% if Alphabet Inc's Class C GOOG shares are included.
The F in FAANG - MetaPlatforms Inc FB 1.33% of the S&P - #10 heaviest in the index
Meta Platforms, formerly Facebook, has had a turbulent year, to say the least. Shares are down more than 43% year-to-date, primarily aided by the disappointing Feb. 3 earnings report that raised concerns about growth prospects for broader technology companies.
The social media giant reported a decline in monthly active users (MAU) for the first time. With user growth slowing down, Meta Platforms is heavily relying on the buildout of its metaverse to attract new users and attention to the platform — however, this is a double-edged sword, as the company’s metaverse division lost more than $10 billion in 2021.
The A in FAANG - Amazon.com, Inc AMZN 2.82% - #3 heaviest stock in the index
The case for Meta Platforms' stock nearly mirrors Amazon, as the stock is down 37% year-to-date following the announcement of a $7 billion loss on its stake in electric vehicle maker Rivian Automotive Inc RIVN.
However, the highlight of the report is that a division of the company, Amazon Web Services, is showing growth, generating a 35% margin over last quarter’s 29%, effectively knocking the operating losses down to $3.8 billion.
The (other) A in FAANG - Apple Inc AAPL 6.58% - #1 heaviest stock in the index
Buyer beware? Maybe, the number-one heaviest stock in the S&P 500 is down 24.54% year-to-date and is trading at October 2021 levels. Despite beating earnings expectations in April, the company warned it would see losses from $4 to $8 billion in the coming quarter amid supply chain constraints, among other challenges.
“Supply chain constraints caused by COVID-related disruptions and industry-wide silicon shortages are impacting our ability to meet customer demand for our products,” CFO Luca Maestri said on a conference call.
The N in FAANG - Netflix Inc NFLX 0.27% - #92 heaviest stock in the index
The stock in the FAANG gang having the worst year is Netflix. The streaming giant fell from grace, tumbling more than 69% year-to-date, following the announcement in its recent earnings report it failed to add new subscribers for the first time in more than 10 years.
In an effort to drum up new growth, Netflix purchased three gaming studios in 2021 and added 20 games to its platform. The company also looks to increase revenue by launching a lower-priced subscription tier with ads.
The G in FAANG - Alphabet Inc Class A GOOGL 2.02% - #4 heaviest stock in the index
Down 25.42% from its highs of Feb. 2, Alphabet, the parent company of Google, reported slower revenue growth in the first quarter of 2022, just 23% over the period a year prior, down from the reported 34% growth in the first quarter of 2020.
Alphabet's board of directors authorized a $70 billion stock buyback, up from the $50 billion authorized last year.
The slowdown in growth is a recurring element in tech equities in 2022; nevertheless, investors should note that this is part of a cycle that began with exceptionally high valuations of tech businesses in 2011 and 2012.
While we can't call it a tech bubble, some trends are clear: these equities are particularly vulnerable to rising interest rates via the discounted cash flow (DCF) method, which includes interest rates in the discounting process — sell-side analysts employ DCF models to value equities.
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