# Tech earnings hit pause button on market rally
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2023-02-03
Category: NEWS
Category URL: https://financedigest.com/category/news
Meta Title: Big Tech Stocks Surge in 2023 But Face Earnings Reality
Meta Description: Apple, Google, and Amazon fall short in end-of-year results, raising concerns about global economic demand and market rally sustainability.
URL: https://financedigest.com/tech-earnings-hit-pause-button-on-market-rallyhtml

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By Caroline Valetkevitch and Herbert Lash

(Reuters) – Big Tech led U.S. [markets on a sharp rebound](https://www.financedigest.com/dollar-rebounds-as-brainard-assures-markets-fed-will-stay-the-course.html "Dollar rebounds as Brainard assures markets Fed will stay the course") to kick off 2023. The message from their earnings on Thursday: not so fast.

Apple Inc, Google parent Alphabet and Amazon.com all posted [results for the end-of-year quarter](https://www.financedigest.com/aon-reports-first-quarter-2018-results.html "Aon Reports First Quarter 2018 Results") that left a sour taste in investors’ mouths. The reports renewed questions about global economic demand, the effect of higher interest rates and whether the [market’s January rally](https://www.financedigest.com/jittery-markets-attempt-risk-on-rally-while-waiting-for-powell.html "Jittery markets attempt risk-on rally while waiting for Powell") got ahead of itself.

Nascent [signs that consumer spending was beginning to rebound in China](https://www.financedigest.com/biden-signs-bill-to-boost-u-s-chips-compete-with-china.html "Biden signs bill to boost U.S. chips, compete with China") were not enough to change that.

Apple, the world’s largest publicly traded company, fell short of expectations, hurt by lower [iPhone sales](https://www.financedigest.com/apples-weak-iphone-sales-drive-first-profit-miss-since-2016.html "Apple’s weak iPhone sales drive first profit miss since 2016") and production disruptions in China. Amazon said operating [profits could fallthis quarter due to lower](https://www.financedigest.com/ford-posts-lower-profit-issues-downbeat-outlook-shares-drop.html "Ford posts lower profit, issues downbeat outlook; shares drop") demand, and Alphabet’s online advertisers cut back their spend as well.

Shares of the three companies dropped after the results were released and were expected to drag the [market lower Friday following a euphoric rally](https://www.financedigest.com/us-stock-futures-bonds-rally-as-markets-flirt-with-fed-pause.html "US stock futures, bonds rally as markets flirt with Fed pause") Thursday.

Maybe the tech [stocks rallied](https://www.financedigest.com/asian-stocks-rally-as-bank-jitters-calm-alibaba-lifts-mood.html "Asian stocks rally as bank jitters calm, Alibaba lifts mood") a little bit too much into these numbers, so the market will be taking a deep breath and saying, ‘OK, well these companies aren’t bulletproof,'” said Daniel Morgan, senior portfolio manager at Synovus Trust Company in Atlanta, Georgia.

These three firms and Microsoft, the four U.S. companies with trillion-dollar [market values](https://www.financedigest.com/dental-3d-printing-market-to-reach-an-estimated-value-of-us-2-9-bn-by-2031.html "Dental 3D Printing Market to Reach an Estimated Value of US$ 2.9 Bn by 2031"), have led the broad-market S&P 500 in 2023. The index is up nearly 9% year-to-date, with Amazon gaining 34%. Big Tech surged Thursday following a strong quarterly report from Facebook-owner [Meta Platforms](https://www.financedigest.com/meta-to-wind-down-nfts-on-platforms-amid-crypto-bust.html "Meta to wind down NFTs on platforms amid crypto bust") Inc.

That’s after the group was battered throughout 2022, trailing the S&P, which dropped [nearly 20%](https://www.financedigest.com/jlr-parent-tata-motors-surges-nearly-20-on-tpg-fundraise-ev-plans.html "JLR parent Tata Motors surges nearly 20% on TPG fundraise, EV plans").

Some [investors saw](https://www.financedigest.com/stocks-with-greater-socially-responsible-investor-demand-saw-weaker-losses-during-the-covid-19-crash.html "Stocks with greater socially responsible investor demand saw weaker losses during the COVID-19 crash") silver linings from Apple and other bellwethers, including Starbucks, that reported results on Thursday. They noted that lockdowns in China strangled sales for many companies in the [world’s second-biggest economy](https://www.financedigest.com/biggest-economy-in-the-world.html "Biggest Economy in the World"), expecting a rebound in the coming year.

When things started to reopen in December (in China), we did [see an increase in traffic](https://www.financedigest.com/fraport-sees-2023-passenger-traffic-at-80-90-of-pre-pandemic-levels.html "Fraport sees 2023 passenger traffic at 80-90% of pre-pandemic levels") to our stores as compared to November and an increase in demand as December rolled around,” Apple Chief Executive Tim Cook told Reuters.

Cook said lockdowns in [China hurt both production and demand](https://www.financedigest.com/oil-prices-slide-as-hopes-for-china-demand-rebound-fade.html "Oil prices slide as hopes for China demand rebound fade"), and the company faced headwinds from the strong U.S. [dollar that pushed](https://www.financedigest.com/powells-warning-on-higher-u-s-rates-pushes-dollar-to-3-mth-high.html "Powell’s warning on higher U.S. rates pushes dollar to 3-mth high") revenues lower.

“Currency was a headwind but will be a tailwind in Q1,” said Nancy Tengler, chief [executive of Laffer Tengler Investments](https://www.financedigest.com/french-watchdog-fines-h2o-asset-management-executives-over-tennor-investments.html "French watchdog fines H2O Asset Management, executives over Tennor investments") in Scottsdale, Arizona, referring to the dollar’s weakening trajectory.

The [supply chain](https://www.financedigest.com/how-to-bring-immediacy-back-to-the-supply-chain-with-faster-payments.html "How to Bring Immediacy Back to the Supply Chain With Faster Payments") was a problem more so than demand, and that seems to have been right-sized.

Similarly, Starbucks said comparable [sales fell 29% from the previous year in China](https://www.financedigest.com/bentley-cruises-to-record-sales-in-2022-despite-china-drop.html "Bentley cruises to record sales in 2022 despite China drop"), the company’s fastest-growing market, but that beginning in January, it saw “very encouraging” recovery momentum there.

Other U.S. consumer bellwethers painted a [mixed picture](https://www.financedigest.com/dollar-tumbles-as-u-s-nonfarm-payrolls-show-mixed-picture.html "Dollar tumbles as U.S. nonfarm payrolls show mixed picture"). Consumer staples giant Clorox said product volumes fell in three of the company’s four business segments in the [fourth quarter](https://www.financedigest.com/german-gdp-contracted-by-0-4-in-the-fourth-quarter.html "German GDP contracted by 0.4% in the fourth quarter"), while automaker Ford said the year ahead was going to be a difficult one.

They, and other companies, are still grappling with [higher interest rates](https://www.financedigest.com/wall-st-indexes-mixed-treasury-yields-tick-up-as-higher-rates-loom.html "Wall St indexes mixed, Treasury yields tick up as higher rates loom") that are slowing demand. This year’s surge in [stocks has been built on a rally in bonds](https://www.financedigest.com/stocks-up-bond-yields-fall-as-markets-mull-a-fed-policy-pause.html "Stocks up, bond yields fall as markets mull a Fed policy pause"), as lower yields make high-valuation shares more attractive. Cost-cutting by Alphabet and Meta led some [investors to think that interest rates](https://www.financedigest.com/uk-stocks-slip-as-rate-hike-worries-grip-investors.html "UK stocks slip as rate hike worries grip investors") are affecting demand.

In many respects we’re waiting for that other shoe to drop – the impact of higher rates on the economy, inflation, earnings and jobs,” said Jack Ablin, co-founder and [chief investment officer](https://www.financedigest.com/iris-software-group-names-matt-tuson-as-chief-revenue-officer.html "IRIS Software Group names Matt Tuson as Chief Revenue Officer") at Cresset Capital, which manages $30 billion. Profits tend to trough nine months after overnight rates [peak and we haven’t even seen the peak in overnight rates](https://www.financedigest.com/bank-of-england-raises-rates-to-3-5-says-inflation-has-peaked.html "Bank of England raises rates to 3.5%, says inflation has peaked") yet.

(Reporting By Herbert Lash, Caroline Valetkevitch and David Gaffen; writing by David Gaffen; Editing by Peter Henderson and Cynthia Osterman)


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