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By Kyle Morris
The U.K.’s Competition and Markets Authority has launched an investigation into cloud gaming and mobile browsers after an earlier report that Apple Inc. and Alphabet Inc. have an effective duopoly on mobile ecosystems.
The regulator said the duopoly allows them to exercise a stranglehold over operating systems, app stores and web browsers on mobile devices.
Write to Kyle Morris at kyle.morris@dowjones.com
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Shares of Apple Inc. and Alphabet Inc. both suffered their largest weekly declines since the beginning days of the pandemic this week, as Big Tech companies continued to draw closer scrutiny from Wall Street.
Apple’s stock
AAPL,
finished down 11.2% on the week, its worst weekly performance since the week that ended March 20, 2020, according to Dow Jones Market Data. The stock declined 17.5% during that early-pandemic stretch.
Shares of Apple fell during all five sessions this week.
Shares in Google parent Alphabet
GOOG,
GOOGL,
declined 10.1% during the week, their worst one-day percentage drop since that same March 20, 2020 week, when they fell 12.03%. The stock’s biggest weekly tumble in more than two years came even as Alphabet snapped a four-session losing streak in Friday trading.
While Apple’s stock has fared better than that of Alphabet and other Big Tech peers, the company faces potential pandemic-related challenges owing to new COVID-19 setbacks at manufacturer Foxconn’s major facility. In addition, the realities of the current economic climate may be catching up to Apple, as Bloomberg News reported Thursday that the company had paused hiring in several areas unrelated to research and development.
See more: Apple reportedly pauses hiring for many roles, joining Amazon in belt-tightening
Though there didn’t seem to be any major news developments pegged to Alphabet specifically in the past week, investors are putting more pressure on big internet companies, according to Bernstein analyst Mark Shmulik. He recently conducted a Big Tech “autopsy” of results from Alphabet, Amazon.com Inc.
AMZN,
and Meta Platforms Inc.
META,
concluding that “perfection is required from here” for the three tech giants since Wall Street has less patience for weak performance in any one of their many business areas.
Read: Amazon closes below $1 trillion valuation for the first time since 2020
All three names suffered negative stock reactions in the wake of their latest earnings reports, which indicated challenges in the ad market due to economic pressures. At Alphabet specifically, “Search was more or less in-line with the buy-side bogey and the Cloud beat, but disappointing YouTube results combined with margin contraction drove a ~10% fall after-hours,” Shmulik wrote.
Alphabet’s stock has declined 40% so far in 2022, while Apple’s is off 22% over the same span. The S&P 500
SPX,
is down 21% on the year while the Dow Jones Industrial Average
DJIA,
is off 11%.
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The Dow Jones Industrial Average has been criticized by some market watchers for being a poor barometer of equity-market performance given its relatively small sample size of just 30 stocks.
But this quality, along with the paucity of megacap technology names, has helped shepherd the index toward what’s expected to be its biggest October gain in its 126-year history.
With a month-to-date gain of 14%, the Dow
DJIA,
is on track for its best monthly performance since January 1976, when it rose 14.4%, according to Dow Jones Market Data. To clinch its best October ever, it only needs to hang on to a month-to-date gain of 10.65% by the time the U.S. market closes on Monday.
The Dow is still in a bear market and remains down more than 10% for the year to date. That compares, however, with year-to-date losses of 18.6% for the S&P 500
SPX,
and 29.6% for the Nasdaq Composite
COMP,
What exactly has made the Dow’s October performance so stellar?
The blue-chip gauge is packed with energy and industrials stocks, which have been among the best performing sectors for the stock market since the start of the year, noted Art Hogan, chief market strategist at B. Riley Wealth Management.
These stocks have performed particularly well since the start of the latest quarterly earnings season, while megacap technology names like Meta Platforms Inc.
META,
Amazon.com Inc.
AMZN,
and Alphabet Inc.
GOOG,
have sputtered after delivering results and guidance that disappointed Wall Street this week.
“It’s very tech-light, and it’s very heavy in energy and industrials, and those have been the winners,” Hogan said. “The Dow just has more of the winners embedded in it and that has been the secret to its success.”
The Dow is on track to log its highest close in at least two months on Friday as it outperforms both the S&P 500
SPX,
and Nasdaq Composite
COMP,
Furthermore, it’s on track to climb for a sixth straight session, what would be its longest winning streak since May 27, according to DJMD.
Adding to the list of notable factoids, the average is also on track to log a fourth straight weekly gain, which would cement its longest winning streak since Nov. 5, 2021, when the index rose for five straight weeks.
Caterpillar Inc.
CAT,
Chevron Corp.
CVX,
And Amgen Inc.
AMGN,
are the top-performing Dow stocks so far this month, having gained 29.3%, 21.2% and 18.3%, respectively, as of Friday.
In recent trade, the blue-chip average was up around 700 points, or 2.2%, on track for its biggest daily point and percentage gain in exactly one week.
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Alphabet Inc. is feeling the sting of a downturn in digital-ad spending. Google’s parent company reported just 6% sales growth year-over-year Tuesday and missed widely on its advertising revenue, pushing shares down in extended trading.
Alphabet
GOOGL,
GOOG,
reported net income of $13.9 billion, or $1.06 a share, in its fiscal third quarter, compared with net income of $1.40 a share in the same quarter a year ago. Total revenue improved a middling 6% to $69.1 billion from $61.88 billion a year ago, the slowest year-over-year growth since sales declined in June 2020, while revenue after removing traffic-acquisition costs was $57.3 billion, compared with $53.6 billion in the year-ago period.
Analysts surveyed by FactSet had estimated net income of $1.26 a share on ex-TAC revenue of $58.2 billion and overall revenue of $71 billion. Alphabet shares slipped more than 6% in after-hours trading immediately following the release of the results, after closing with a 2% increase at $104.48.
The results, which missed in several key product categories, further rattled investors, already spooked by poor quarterly results last week from Snap Inc.
SNAP,
Facebook parent company Meta Platforms Inc.
META,
is scheduled to report its third-quarter results Wednesday.
Alphabet Chief Executive Sundar Pichai acknowledged the shortfall in ad revenue during a conference call with analysts. He vowed to take several measures, including a sharpened focus on products that improve search through artificial intelligence and to scale back hiring and other operating expenses.
“There is no question we are operating in an uncertain environment,” Alphabet Chief Business Officer Philipp Schindler said on the call, noting reductions in ad spending by financial services that deepened during the third quarter.
Google’s total advertising sales improved to $54.5 billion from $53.13 billion a year ago, but badly missed analysts’ average expectations for $56.58 billion. Search was $39.5 billion, compared with $37.93 billion last year. YouTube ad sales slipped to $7.07 billion from $7.21 billion a year ago.
“When Google stumbles, it’s a bad omen for digital advertising at large,” Insider Intelligence analyst Evelyn Mitchell said. “Not only did Google miss analyst expectations for topline revenue, YouTube ad revenues shrank for the first time since Google started reporting YouTube earnings separately in Q4 2019, due in large part to persistent competition in streaming and short video.”
Google’s Cloud revenue did climb to $6.9 billion from $4.99 billion; Google Cloud is believed to be third in cloud sales behind rivals Amazon.com Inc.
AMZN,
and Microsoft Corp.
MSFT,
As is its customary practice, Alphabet did not disclose fourth-quarter guidance. But Alphabet Chief Financial Officer Ruth Porat cautioned during the analyst call that the company faces “tough comps” in the current fourth quarter. Last year, Alphabet raked in $75.3 billion in Q4 revenue.
Google’s stock has skidded 28% so far this year. The broader S&P 500 index
SPX,
is down 19% in 2022.
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This may surprise you: Wall Street analysts expect earnings for the S&P 500 to increase 8% during 2023, despite all the buzz about a possible recession as the Federal Reserve tightens monetary policy to quell inflation.
Ken Laudan, a portfolio manager at Kornitzer Capital Management in Mission, Kan., isn’t buying it. He expects an “earnings recession” for the S&P 500
SPX,
— that is, a decline in profits of around 10%. But he also expects that decline to set up a bottom for the stock market.
Laudan, who manages the $83 million Buffalo Large Cap Fund
BUFEX,
and co-manages the $905 million Buffalo Discovery Fund
BUFTX,
said during an interview: “It is not unusual to see a 20% hit [to earnings] in a modest recession. Margins have peaked.”
The consensus among analysts polled by FactSet is for weighted aggregate earnings for the S&P 500 to total $238.23 a share in 2023, which would be an 8% increase from the current 2022 EPS estimate of $220.63.
Laudan said his base case for 2023 is for earnings of about $195 to $200 a share and for that decline in earnings (about 9% to 12% from the current consensus estimate for 2022) to be “coupled with an economic recession of some sort.”
He expects the Wall Street estimates to come down, and said that “once Street estimates get to $205 or $210, I think stocks will take off.”
He went further, saying “things get really interesting at 3200 or 3300 on the S&P.” The S&P 500 closed at 3583.07 on Oct. 14, a decline of 24.8% for 2022, excluding dividends.
Laudan said the Buffalo Large Cap Fund was about 7% in cash, as he was keeping some powder dry for stock purchases at lower prices, adding that he has been “fairly defensive” since October 2021 and was continuing to focus on “steady dividend-paying companies with strong balance sheets.”
After the market hits bottom, Laudan expects a recovery for stocks to begin next year, as “valuations will discount and respond more quickly than the earnings will.”
He expects “long-duration technology growth stocks” to lead the rally, because “they got hit first.” When asked if Nvidia Corp.
NVDA,
and Advanced Micro Devices Inc.
AMD,
were good examples, in light of the broad decline for semiconductor stocks and because both are held by the Buffalo Large Cap Fund, Laudan said: “They led us down and they will bounce first.”
Laudan said his “largest tech holding” is ASML Holding N.V.
ASML,
which provides equipment and systems used to fabricate computer chips.
Among the largest tech-oriented companies, the Buffalo Large Cap fund also holds shares of Apple Inc.
AAPL,
Microsoft Corp.
MSFT,
Amazon.com Inc.
AMZN,
and Alphabet Inc.
GOOG,
Laudan also said he had been “overweight’ in UnitedHealth Group Inc.
UNH,
Danaher Corp.
DHR,
and Linde PLC
LIN,
recently and had taken advantage of the decline in Adobe Inc.’s
ADBE,
price following the announcement of its $20 billion acquisition of Figma, by scooping up more shares.
To illustrate what a brutal year it has been for semiconductor stocks, the iShares Semiconductor ETF
SOXX,
which tracks the PHLX Semiconductor Index
SOX,
of 30 U.S.-listed chip makers and related equipment manufacturers, has dropped 44% this year. Then again, SOXX had risen 38% over the past three years and 81% for five years, underlining the importance of long-term thinking for stock investors, even during this terrible bear market for this particular tech space.
Here’s a summary of changes in stock prices (again, excluding dividends) and forward price-to-forward-earnings valuations during 2022 through Oct. 14 for every stock mentioned in this article. The stocks are sorted alphabetically:
| Company | Ticker | 2022 price change | Forward P/E | Forward P/E as of Dec. 31, 2021 |
| Apple Inc. |
AAPL, |
-22% | 22.2 | 30.2 |
| Adobe Inc. |
ADBE, |
-49% | 19.4 | 40.5 |
| Amazon.com Inc. |
AMZN, |
-36% | 62.1 | 64.9 |
| Advanced Micro Devices Inc. |
AMD, |
-61% | 14.7 | 43.1 |
| ASML Holding N.V. ADR |
ASML, |
-52% | 22.7 | 41.2 |
| Danaher Corp. |
DHR, |
-23% | 24.3 | 32.1 |
| Alphabet Inc. Class C |
GOOG, |
-33% | 17.5 | 25.3 |
| Linde PLC |
LIN, |
-21% | 22.2 | 29.6 |
| Microsoft Corp. |
MSFT, |
-32% | 22.5 | 34.0 |
| Nvidia Corp. |
NVDA, |
-62% | 28.9 | 58.0 |
| UnitedHealth Group Inc. |
UNH, |
2% | 21.5 | 23.2 |
| Source: FactSet | ||||
You can click on the tickers for more about each company. Click here for Tomi Kilgore’s detailed guide to the wealth of information available free on the MarketWatch quote page.
The forward P/E ratio for the S&P 500 declined to 16.9 as of the close on Oct. 14 from 24.5 at the end of 2021, while the forward P/E for SOXX declined to 13.2 from 27.1.
Don’t miss: This is how high interest rates might rise, and what could scare the Federal Reserve into a policy pivot
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