This Week In The Markets 2/7–2/12

News We’re Watching

Thursday’s Tech Earnings: Facebook and Instagram’s Parent Company, Meta, misses earnings, causing stock to fall by 26%.

Meta, Facebook’s parent company, suffered a loss of nearly $230 billion in market value on Thursday afternoon. The loss has been reported to be the worst one day loss ever in stock market history with Meta’s stock falling nearly 26% in after hours trading.

An earnings report published last week provided a greater look into the company’s financial performance after its announcement to expand its reality lab division in 2021. Mark Zuckerberg prepares to move all of his app development onto what is called the ‘metaverse,’ where users would share experiences in virtual reality worlds. These yet to be released products cost Meta more than 10 billion dollars in development costs last year.

At the same time, however, Meta argues that it is also seeing challenges as a result of Apple’s changes to its privacy policy. These changes make it more difficult to create personalized ads based on tracking user’s digital habits on Meta’s social media services such as Facebook, Whatsapp, and Instagram. These changes cost Meta nearly 10 billion dollars in ad revenue losses.

Although the changes to Apple’s privacy policy have greatly affected other ad reliant social networking companies, they have managed to make up for the damages. Meta’s competitor Snapchat reported its most profitable quarter of net income as a public company in quarter four of 2021. Additionally, Pinterest, an image sharing network, reported a 28% increase in after hours trading on Thursday after exceeding Wall Street’s expectations in their quarterly earnings report.

Going forward, all eyes are on Twitter, who will release their quarterly report on Thursday, Feb.10.

Wall Street predicts up to seven increases to the Federal Reserve interest rate in 2022

According to top economists, Federal reserve rates are predicted to rise as many as seven times in 2022. In the wake of the Coronavirus pandemic, inflation is currently at a four decade high and are expected to continue its upward trend unless action is taken.

These rate hikes are part of an effort to fight inflation. The ongoing Covid-19 pandemic and continuous supply chain issues have served as catalysts for the country’s rising interest rates.

In a Jan. 26 press conference, Federal Open Market Committee Chairman Jerome Powell said “the committee is of a mind to raise the federal funds rate at the March meeting assuming that the conditions are appropriate for doing so.”

Last year, the Fed began to slow their bond purchases with plans to end the program in early March. Although it is uncertain when the Central Bank will shrink its bond holdings, by concluding bond purchases and raising interest rates, policymakers will begin their efforts to reduce their balance sheet of over $9 trillion.

Google’s parent company, Alphabet, announces 20:1 stock split effective July 1

On Tuesday, Jan. 25, Google’s parent company, Alphabet, announced that it would be splitting its stock 20 for 1 during their quarterly earnings call. The company, who has almost doubled in value since May of 2020, reported a 32% increase in their fourth quarter earnings. At time of writing, Alphabet is now valued at just under 2 trillion dollars.

With such high levels of growth, Alphabet’s stock price has risen to almost $3,000, making it one of the highest priced stocks in Silicon Valley. Based on current prices, the 20 to 1 split will bring the stock price down to 150 dollars per share, making it much more accessible to retail investors. Additionally, a stock price of 150 per share could make Alphabet’s stock a potential candidate for the DOW 30.

Though this split is an indicator of the company’s rising success, this does not necessarily mean that the existing shares will go up in value. Simply put- if an investor owned 100 shares, they will now own 2,000. However, the total value would remain the same.

If Alphabet follows the likeness of Apple and Tesla, this stock split could mean a potential increase in price per share. Stock splits are, after all, a clear signal to investors that a company is doing well. Many analysts consider it a bullish symbol.

Alphabet’s rising success is yet another indicator of the continuing market value of big tech. As previously mentioned, both Apple and Tesla have split their stocks in the last year and a half and have experienced exponential growth ever since. Some analysts suspect Alphabet to cultivate a valuation over 2 trillion by the end of 2022, following the likes of Microsoft and Apple.

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