Market commentary by eToro analyst for Romania, Bogdan Maioreanu
In a high inflation and increasing interest rates environment, the technology sector is struggling to show good financial results. But not all sectors are having these issues. This week, companies from consumer staples were beating expectations showing this sector safe haven potential for investors.
Coca Cola Company’s (KO) latest earnings report is supporting the investment thesis that in a high inflation, high interest environment consumer staples can act as a safe haven shielding investors of volatility. The report showed 11% revenue growth. Organic sales were up 16% during the quarter versus 9.8% expectations, led by a 20% jump in the Europe, Middle East & Africa region and 18% in Latin America. Organic sales were up 14% in North America. The company showed a slight 0.5% decrease in operating margin that sits now at 29.5%. Guidance is strong, Coca Cola expecting to deliver organic revenue growth of 14 to 15%. These results are coming after its rival PepsiCo Inc. (PEP) posted similar good results with close to 9% increase in revenue and guidance revision of organic revenue growth to 12% versus prior 10%.
The situation in the technology sector continues to be difficult. Meta Platforms (META) shares lost 19% last night, during aftermarket, following a mixed third quarter earnings report. While the company exceeded revenue expectations, it missed on profits. Third Quarter revenue fell by 4% to land at 27.71 billion dollars but costs and expenses rose 19%, and so operating income fell by 46%, to 5.66 billion dollars. Operating margin decreased drastically at 20% versus 36% a year ago. Mark Zuckerberg warned about near term challenges on revenue for Meta but is confident that the company has “strong fundamentals” to return to growth. User count rose 3% to 1.98 Billion for Facebook and 4% to 2.93 Billion for the other apps including Instagram and WhatsApp.
Meta together with Microsoft (MSFT) and Alphabet (GOOG) – Google parent – sent Nasdaq and S&P 500 lower on mixed earnings reports and lower guidance. The Technology Sector finished over 2% lower and it broke the three days relief rally of S&P 500. Beside Meta’s results, some of the drivers for the move were based on concerns raised by Google that noted in Q2 a pullback in ads spending at Youtube and mentioned that this trend increased in the third quarter. Microsoft also posted its weakest quarterly sales growth in five years and mentioned that the near term PC demand will decrease, leading to slower software sales.
The tech sector is facing a lot of headwinds in the next period, some stemming from the high energy prices that leads to increased costs for data centers, other from the decrease in economic activity leading to slower software and advertisements sales. The strong dollar is making products more expensive for overseas buyers and is also taking a toll on the sales.
According to eToro Retail Investor Beat survey, almost 69% of the Romanian investors are having Technology stocks in their portfolios and this number will grow to 71% in the next three months. Technology is the second industry most owned by investors after the financial sector. In the bottom of the investors preferences we find discretionary consumer goods – 31%, industrials – 32%, communications 41% and consumer staples – 41%. Though close to the end of investors preferences, Consumer Staples performed better this year, losing only 7.39% compared with a 20.14% drop for the S&P 500 index.
Bogdan Maioreanu, eToro analyst and markets commentator, has over 20 years of experience in financial services and investments and a strong background in journalism. He held different Corporate Banking management positions in both Raiffeisen Bank and OTP Bank, before moving to business consultancy roles working for IBM Romania among others. Bogdan is an Executive MBA from Asebuss and Washington University.
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