Cusp of Recession. Is this what the beginning looks like?

Posted in Industry News by on July 26th, 2022.

Get ready for a bumpy ride as earning are being released by Big Tech this week. GOOGL GOOG, Amazon.com Inc. AMZN, Apple Inc. AAPL, Facebook parent Meta Platforms Inc. META and Microsoft Corp. MSFT — prepares to report, there are serious doubts about their near future for the first time. All five have signaled that they are cutting costs or plan to soon, as MarketWatch’s Jon Swartz reported. Amazon ripped off the Band-Aid three months ago, and it looks like some of its Big Tech cohorts may look to do the same in this earnings season. Apple has reportedly planned cost cuts for next year, while Microsoft is closing down open positions and making small layoffs. Meta Chief Executive Mark Zuckerberg told employees on the last day of the second quarter that they face one of the “worst downturns that we’ve seen in recent history,” and Alphabet CEO Sundar Pichai warned employees of slowing hiring just a few days after the quarter close. Results last week from Snap Inc. SNAP and Twitter Inc. TWTR show concerns about the digital-advertising business are founded.

Any big moves for those five companies would have major ripple effects in the market. Collectively worth roughly $7.5 trillion despite the declines that have already struck this year, the five companies make up about 23% of the total market cap of the S&P 500 index SPX, according to the Dow Jones Market Data Group. Source

This year is going to be a tough comparison to that performance, especially after Amazon reported a loss of nearly $4 billion in the first quarter. And cost-cutting from those companies will have an effect on the larger tech economy. The true concern in Silicon Valley and Wall Street is that a domino effect happens — Big Tech cuts costs, hurting smaller tech companies that rely on them, who in turn go under or at least cut back on costs such as cloud computing, cloud software, hardware and more, causing more pain throughout the industry.
The writing is on the wall as cracks in the overall economy have been showing for months now as Analysts have been warning us. Not to mention the upcoming Fed meeting later this week which we can expect to have another 75-base point hike and even possibly a full point for the first time. If that happens, coupled with the misses on earnings we could see a further dip in the overall markets bringing us to a new low while catapulting the U.S. into an obvious recession.
With all that said remember one thing, Warren Buffet would not be what he is and the wealth he has accumulated had it not been for recessions and dips in the market. If we hit a new low be ready to hit that buy button on “Quality Companies”. You can thank me later
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