A strong report from Facebook Inc (NASDAQ:FB) overnight is settling some nerves brought on by falling oil prices and a more hawkish Federal Reserve and is helping US markets towards a mixed open on Thursday ahead of earnings from tech heavyweights Google Inc (NASDAQ:GOOGL) and Amazon.com Inc (NASDAQ:AMZN).
The US labour market is strong so that was never an issue for this Federal Reserve statement but referring to economic expansion as “solid” was an upgrade from “moderate” used at the last meeting and indicates the Fed’s belief that the US economy would be capable of withstanding a rate-hike this year.
The Fed did acknowledge inflation in the US could come down further but again took a hawkish stance towards it by dismissing it as transitory because it is caused by lower energy prices. The only significant dovish addition to the statement was a reference to “international developments” which implies Fed policy could be impacted by deteriorating economic conditions in Europe, China, Japan and Russia.
Facebook earnings beat on the top and bottom line and metrics used to judge user engagement and mobile usage all came in ahead of expectations. Facebook shares could still open lower despite the strong results as the major concern of higher expenditure outpacing revenue growth was shown to be valid. Facebook made some major purchases in 2014 so 2015 looks like the year it will spend money integrating and marketing them so it may be 2016 before investors enjoy the results.
The report on Amazon earnings is expected to continue an ongoing theme for the company as visionary founder and CEO Jeff Bezos focuses more on expansion that profits. Revenues have been expanding rapidly but so has expenditure resulting in negative income growth. With all the growth potential stemming from its massive R&D spend; shares may just need the growth in expenses to slow down to spark a recovery.
Google shares have been under pressure heading into Thursday’s earnings report after a series of analyst downgrades. Google has not been able to make the same transition to ad revenue earnings from mobile that Facebook has and remains very reliant on desktop search ad sales. Evidence that revenue is coming from more diverse sources including YouTube, Google Play and mobile search will be well received. With $62bn in cash at last count there is an outside chance Google could begin paying a dividend which could prove very popular with income-hungry investors in the current low yield environment.
Shares in McDonald's Corporation (NYSE:MCD) are expected to open higher after the departure of its CEO Don Thompson.
Futures suggest the:
S&P 500 will open unchanged at 2,002 with the
Dow Jones expected to open 33 points higher at 17,224 and the
Nasdaq 3 points lower at 4,137.
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