Today in the Market (2/1/2022)

Good Evening. Here is everything you need to know about today’s recap on the in’s and out’s of the major market and economic events.

Following a historically volatile January, Wall Street’s main indexes climbed up at the end of the day into the green for the third day in a row, as investors priced in tighter monetary policy and weighed a slew of big-name earnings reports.

The Dow Jones ended the day up 0.77%, and the Nasdaq was up 0.75%. The S&P 500 returned to positive territory, finishing the day up 0.69%. The blue-chip index had a negative return of 5.26% in January, its largest monthly decrease since March 2020 and poorest January since 2009, while the Nasdaq narrowly escaped having its worst-performing January ever after losing 8.98%.

EARNINGS, EARNINGS, EARINGS

Alphabet (GOOG, GOOGL), the parent company of Google, released its fourth-quarter earnings after the market closed on Tuesday, exceeding analysts’ estimates on both the top and bottom lines, with revenue up 34% year-over-year. Alphabet also announced that its Board of Directors has approved a 20-for-1 stock split, which will be voted on by shareholders at their June 1 meeting.

What does this mean for investors? The split would make the stock less expensive, making it more accessible to a wider audience like retail investors. In addition, there are important ramifications to the option market, including more accessibility for those selling covered calls on Google shares.

Alphabet’s advertising business, which is its main source of revenue, as well as its up-and-coming cloud business, has attracted the attention of investors and experts.

Despite headwinds in the online advertising space caused by changes in Apple’s (AAPL) iOS privacy settings, advertising revenue increased from $46.1 billion to $61.2 billion in the quarter.

While Apple’s iOS platform privacy restrictions have impacted marketers such as Snap and Facebook parent Meta, Google has been less impacted because of the vast quantity of data it collects through its own search and YouTube offerings.

Alphabet’s Google Cloud expansion has also been highlighted, as the business continues to invest heavily in the platform in an effort to compete with Amazon’s AWS and Microsoft’s Azure cloud services. The quarter’s cloud revenue was $5.5 billion, up from $3.8 billion in Q4 2020. The segment’s operating losses also decreased from $1.2 billion to $890 million.

While the tech industry has been particularly turbulent recently, Alphabet’s stock has comfortably outperformed its peers.

COMEBACK FOR MEME STOCKS?

AMC Entertainment (AMC) soared more than 10% in early trading after preliminary fourth-quarter revenue and EBITDA (Earnings before Interest, Tax, and Depreciation) surpassed expectations. Other retail-trader favorites, such as fellow meme-stock darling GameStop, also saw rises (GME).

The game retailer also outperformed expectations in the fourth quarter. According to Bloomberg data, preliminary revenue came in at $1.17 billion, which was higher than the Street’s expectation of $1.09 billion. Preliminary adjusted EBITDA ranged from $146.8 million to $151.8 million, exceeding Bloomberg consensus projections of $82.4 million.

As of Tuesday’s Closing, AMC’s stock was up 4.98% to $16.86 per share, while Gamestop’s stock was up 3.37% percent to $112.60 per share.

Should investors jump back into the Memes?  While AMC and GME seem to be beating analysts’ consensus on a number of financial metrics, the recent rally’s may be more a function of “buying the dip” and FOMO (Fear of Missing Out).  Meme stocks still appear to be overvalued based on their fundamentals.  Investors should tread with caution.

 

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