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Further strength was exhibited on Wall Street as the S&P 500 (SPX) this Monday as the index enjoyed a fourth straight day of stock market gains, with the tech sector doing the heavy lifting. The Nasdaq composite added 1.15% as the FAANGS led the charge, while the SPX rose 0.68% to close on 2,724.87 yesterday in New York.
Up a further 10.34 points (0.38%) to 2,735.24 this Tuesday, the S&P 500 index is now around 3% higher than last Wednesday (January 30), but broadly where it was on October 23 last year. Still, it is 384 points (c.16.33%) north of where it was in the dark days (December 24) just before the Christmas break. On Nasdaq, Google shares were trading at $1,140.80 as of 2.47pm (EDT) today, up slightly by $1.20 (0.11%).
Amazon shares by the close today had put on $25.50 (1.56%) to $1,658.81, although the stock dipped a tad back in early after-hours trading. But since the end of January (last Thursday) they are off a good $67.
The strong start to February comes in the wake of a big rally in January as the market digests a more dovish stance and comments from the U.S. Federal Reserve, the Federal Open Markets Committee (FOMC) and continued strong data.
European markets were set for a quiet-ish open this Tuesday following some continued positive momentum from the U.S. But Asia was mixed and many markets are closed for the new year. Chinese New Year, also known as the Spring Festival and the most celebrated festival in the Chinese calendar, this year is Tuesday, February 5 (the "Year of the Pig" in 2019). Not only the most important holiday in mainland China, Hong Kong and Taiwan, it is influential in territories with major Chinese diasporas such as Singapore.
For the U.K. stock market, the FTSE 100 had been struggling of late to find much momentum above 7,000 mark. But this Tuesday it ended up almost 2% at 7,170 points after rising steadily over the day's trading session. BP was the big winner with its shares up more than 5% and one of the index's biggest risers for the day, after the oil giant's annual results. These revealed annual profits of $12.7 billion and were ahead of expectations.
Only six stocks ended lower, led by property firm Segro. On the FTSE 250, the index ended 0.6% to the good. Metro Bank, a stock that had been a heavy faller just recently, rose 6.3%.
In the U.S., Alphabet delivered very strong revenue growth yet the running costs and capital investment is higher than thought. In consequence the shares took a slight dip in after-hours trading on Monday evening, having risen more than 2% the day before. Alphabet/Google's stock is around $166 higher than on December 21 last year when it was exchanging hands at about $980 a pop, and trading now broadly where it was on October 8, 2018.
The company beat on both the bottom and top lines. "However, the real concern is that higher costs are impacting margins and may be the new normal as competition intensifies in digital advertising," said Neil Wilson, senior analyst at Markets.com in The City of London.
Monica Peart, an eMarketer forecasting analyst based in New York, reacting to Alphabet/Google's earnings said: "Google rounds out 2018 with a somewhat lower than expected performance search revenues. However, with better than expected performance for the business segment that contains mobile display ads and video ads, we can expect to hear that Q4 was another positive quarter for the contributions from mobile and YouTube."
She added: ''The back half of 2018 showed [foreign] currency headwinds across tech companies and Q4 is expected to have followed that trend for Google as well, but the search giant is also facing an increasingly competitive search landscape in the U.S. with Amazon’s rise in prominence among CPG and retail advertisers."
The CPG (Consumer Packaged Goods) industry is one of the largest in North America and valued at around $2 trillion. Although growth has slowed in this industry, companies that provide CPGs still benefit from large margins and strong balance sheets.
Revenues for the company in the fourth quarter rose 22% to just short of $40 billion, with net income coming in in at $8.95 billion, the equivalent of $12.77 per share. This compares with a net loss a year earlier due to a one-off tax charge. Full year revenues shot up though by a pretty healthy 23% to $136.8 billion.
Google continues to dominate search engine market, with ad clicks on its sites up a massive 66%. That said, the cost per click declined 29% year on year (y-o-y). Added to that, rising competition from the likes of Amazon and Facebook is affecting its pricing power.
Business costs are significantly higher too. For evidence just take traffic acquisition costs, which rose 15% y-o-y to $7.44 billion. Meanwhile capex has shot up as Google invests in data centers etc, total capital expenditure (capex) for Google doubled in the year to more than $25 billion.
Out of 45 analysts providing stock recommendations on Alphabet Inc./Google, currently the consensus and vast majority (39) rated the stock a "Buy" (versus 38 one month before), with 5 rating it "Overweight", 1 a "Hold" and none rating it "Underweight" or "Sell." The average Price Target was $1,346, which put it around $200 - or c.17.5% - above where it was trading late today on Nasdaq.
