Written by: Susannah Streeter | Hargreaves Lansdown
The stomach churning rollercoaster ride on the financial markets is set to continue, with a lurch back upwards expected for indices in Europe and the US as encouraging results from Amazon and Snap laid the groundwork for a relief rally at the end of a tumultuous week.
The non-farm payrolls report out later is a keenly watched snapshot of the US labour market, and its likely to show Omicron caused jobs growth to slow or even reverse particularly in industries like hospitality, leisure and healthcare. But with a smaller pool of labour around it’s likely to have pushed up wage growth, another inflationary warning light keenly watched by investors.
Inflation concerns are looming ever larger with the cost of living squeeze intensifying as monetary policy tightening ramps up, and no let-up in soaring energy prices in sight. With a more aggressive attitude coming from the Bank of England towards reining in inflation, it has set the tone for more anxiousness about the effect of sharply rising prices will have on consumer confidence and corporate resilience.
When Facebook loses a chunk of value bigger than the size of any company listed on the FTSE 100 it demonstrates just how sensitive tech investors are right now to a whiff of weakness, but also the astronomical gains the tech giants made during the pandemic.
Meta’s value has been cut down to the size it was18 months ago, at the time a record valuation, as the world adjusted to the shock of the crisis, shifting lives online to cope. But in just 14 months, by September 2021, the company’s valuation had increased by 64%. So a sharp correction was always going to be huge, and it’s turned out to be the biggest one day loss in history for a US company.
It shows how patience is running very thin for companies investing heavily now, for profits down the line. This is particularly the case if they are falling so out of favour with the younger generation, who will be crucial to attract to promise of the metaverse which Meta is ploughing cash into.
Snap, in contrast, has star appeal for young social media fans, adding 13 million more daily active users, and crucially delivering a profit for the first time. It’s TikTok inspired Spotlight feature is pulling in the views, and arguably has much more appeal than Meta’s Reels. Just like any social arena, young people, don’t often want to be seen hanging out with their parents, which is why the lure of Snap and TikTok over Facebook or Instagram is so strong. The 60% surge in the share price in after-hours trading reflects the optimism, that this won’t be a flash in the pan result, but the start of sustained progress in user growth and profits.
Amazon’s operational profits may have been seriously dented by a ramping up of spending, but has set the King of e-commerce up for continued dominance. With Prime so ingrained in customers’ everyday lives from deliveries to streaming, they are likely to readily absorb the price increase, which will considerably help the bottom line. With Amazon Web Services delivering the profits, the tail may appear to be wagging the dog, but it demonstrates the resilience of the tech giant’s model. AWS, is helping power the world’s shift to virtual and hybrid working, and as companies seek out efficiencies, it’s being recognised by investors as a powerhouse of growth.