Markets fluctuate. They always have. So it is difficult to speak too hyperbolically about any given period. Last week felt like an especially wild week, taking into account the fact that we are not in a crash or crisis environment and that the broader markets finished 1-2.4% higher on the week. It probably wasn't that wild when you take a longer-term perspective, but it felt that way.
The wildness took the form of a yo-yoing, follow the leader dynamic as three large tech firms - Alphabet (NASDAQ:GOOGL), Meta Platforms, and Amazon (NASDAQ:AMZN) - reported earnings after market hours on three successive days, and the market followed them higher, then lower, and then higher again. After the correction in January, it seemed like most investors were looking for direction and happy to take the word of whoever spoke last.
The three giants' reports had more to tell investors than just the immediate direction of markets. Alphabet's strength was a reminder of the power of the Google search business even as compared to Facebook (NASDAQ:FB)'s money-spinners and Amazon Web Services. At the same time, the dip in Youtube's growth numbers hold a warning for the end of outsized growth. The end of outsized growth was the obvious note on Facebook's call, along with the worries about TikTok and the concerns with Apple (NASDAQ:AAPL)'s IDFA change. Amazon already saw their outsized growth slow in Q3, and so proving they weren't grinding to a halt was enough to buoy shares.
But the broader message underlying this earnings season so far, and the last 6+ months in the market, is that growth doesn't continue forever and trends change. While many investors have joined the markets in the last couple years and ridden a wave of excitement, disruption, acceleration, and tech-driven growth, the bumps we've seen both in these reports and recent months has ended that party. Which means we're going to have to do a little bit more work as investors to analyze securities and identify opportunities.
Which is what we cover on this week's the Razor's Edge podcast. My co-host Akram's Razor and I talk about the giants' earnings and their set-up, including why Facebook's position is better than it might seem and why Amazon's is, once valuation is factored in, maybe not so strong. We also talk about the historic parallels for growth slowdowns and how they might play out in this cycle, and also where we might be in that slowdown process. Hint: there may be some good quarters left for these sorts of companies before things really grind down.
Check out the podcast either here or here, and you can find it wherever you get your podcasts by searching for The Razor's Edge. Those of you reading this on the desktop can listen below:
Topics Covered
- 2:00 minute mark – Initial reaction including the muted note with Google
- 7:00 – What explains the outsized moves
- 14:00 – The nature of Amazon’s segments
- 18:00 – Facebook’s issues and how they might overcome it
- 30:30 – Peak online time
- 36:00 – AWS’s future growth
- 46:00 – Is this what slowdowns look like
- 1:00:00 – The market set-up