Fred Razak, Chief Trading Strategist at CMTrading looks at the upcoming October “Earnings season”, where companies release their earning reports and suggests investors should be keeping a keen eye on the FAANG companies Meta (formerly Facebook, Amazon, Apple, Netflix and Alphabet (formerly Google).  

Smaller company bump

“The share price for smaller companies can be influenced and swung a little bit through what's called the pump and fade move,” says Razak, “The small changes can make a big difference, so they go out of their way to make their results seem as positive as possible.” 

Expectations for the FAANG companies

“There is a slowdown in revenue from advertisement, which most of these companies, Meta, and Google for example will really start feeling. This is not true of Apple and Amazon who will instead be impacted by the fact that consumer spending is decreasing and is expected to decrease even further,” explains Razak. “So each of these companies, even though they are in high-tech and though they are competing against one another, are all going to be affected by sales in different ways, giving us a gamut of what's going on in the market overall.” 

The impact of this on the rest of the market

“Amazon for example doesn't exist in a vacuum. There are the logistics companies responsible for getting their products to the consumers, and then the oil companies who supply those logistics companies are going to be affected, the effects are going to be widely felt,” he says. “You know, if sales are down, there is a ripple effect across the market. These companies are important, because we see them affect everyone else.” 

Other threats to the big tech companies

“Some of these companies are facing both social and legal challenges. There are tremendous threats that courts will end up breaking apart these companies and that comes with good sides and bad sides. While it allows new companies to enter the markets and lowers the power of these giants it also causes chaos and uncertainty in the markets. There are ripple effects to it,” he says. 

“Tesla will be looking at their statistics to determine whether, having taken a sizeable chunk of the consumer vehicle market, they now have brand loyalty and customers are returning to buy their second and third cars,” Razak explains. “Similarly Netflix is seeing subscriber numbers take a sizeable dip. Do they have the loyalty?” 

How will this play out in the market?

“This comes with lower expectations. We can see the markets are retracing before we even have the numbers. So the question now is, 'are the numbers bad, or are they not as bad as we thought they might be,” he says. “We are not asking, 'are we turning around here' or 'are we expecting growth and massive expansion'. That's not happening. The questions analysts are looking to answer is, 'just how bad is it'.” 

“Like with the tech giants the big banks can give a clearer picture of what we can expect moving forward. Earnings season, particularly in a bear market, offers huge opportunities, but you have to look at the big picture,” says Razak. “These aren't normal conditions and new investors need to tread carefully, don't take unnecessary risks, and weigh up the data very carefully.” 

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