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Today in the Market (4/27/2022)

Good Evening. Concerns over inflation and global economic growth stoked increased volatility across risk assets. However, U.S. equities gained Wednesday afternoon to recoup some losses after the major equity indexes fell the day before.

The S&P 500 index finished in the green gaining 0.21%, while the Dow was up 0.19%. The Nasdaq Composite Index fell short at 0.01%.

A BATTLE IN THE CLOUDS

After the market closed on Tuesday, Microsoft (MSFT) released its third-quarter earnings, exceeding analysts’ estimates on both the top and bottom lines.

Microsoft’s crucial Intelligent Cloud business saw revenue rise by as much as 26% year-over-year to $19.1 billion during the quarter. Meanwhile, the Azure division of the company grew 46% year-over-year.

Microsoft’s personal computing division, which includes sales of Windows 11 as well as its Xbox and Surface products, increased by 11% to $14.5 billion, with advertising revenue increasing by 23%.

However, it’s not the same story for Google’s parent company Alphabet(GOOGL). GOOGL announced first-quarter sales that were approximately in line with expectations, with the tech giant’s major search advertising and cloud businesses showing resiliency. However, as prices rose, earnings were lower than predicted, and growth in the internet behemoth’s YouTube business slowed dramatically compared to last year.

Google ad income increased by roughly 22% in the first quarter to $54.66 billion, exceeding analyst projections of $54.12 billion. However, YouTube advertising revenue increased only 14% to $6.87 billion, falling short of expectations of $7.4 billion. In recent quarters, this business has been the company’s fastest-growing segment, with revenue roughly 49% more than the same period the previous year. “YouTube led all platforms in 1Q22 when respondents were asked which platform they used ‘most often’ for mobile video, but YouTube dropped to 35% of respondents vs. 45% in 1Q21, while TikTok was #2 with 22%,” John Blackledge, a Cowen analyst, wrote.

Despite this, Alphabet has been stepping up its cloud efforts to compensate for decreasing growth elsewhere. While Google Cloud is still a small player compared to Amazon Web Services and Microsoft Azure, it is growing swiftly, but remains unprofitable. For the first quarter, the unit increased sales by 43% to $5.8 billion, which was about in line with projections. However, operating losses were higher than predicted at $931 million, compared to a loss of $893.2 million expected by Wall Street.

So far this year, Big Tech and other once-high-flying growth firms have been hammered by the potential of increased interest rates from the Federal Reserve, which would raise borrowing costs and put downward pressure on their valuations. Alphabet shares have dropped 18% year to date as of Tuesday’s close, while the S&P 500 was down 12%.

401K JUST GOT COOLER

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Fidelity Investments announced plans yesterday to become the first large retirement provider to allow savers to invest in bitcoin through their 401(k).

The details: The 23,000 employers that utilize Fidelity’s retirement services will be able to add bitcoin to their employees’ investing options later this year. Employees will be able to move up to 20% of their balance to a bitcoin-holding account, as well as redirect up to 20% of their future paycheck contributions there.

Employers, on the other hand, can set lower caps or opt-out entirely, which many will do. Concerns about the practice are widespread: Last month, the US Labor Department advised businesses to proceed with caution when introducing a cryptocurrency to 401(k) plans.

  • Meanwhile, proponents claim that incorporating a small amount of cryptocurrency into a retirement portfolio might help offset losses in traditional investments and even work as an inflation hedge.

Looking forward… While Fidelity intends to diversify beyond bitcoin and into other digital assets, its competitors are sticking to fiat. According to the Wall Street Journal, Vanguard Group will not be including cryptocurrency in its retirement plans. Cryptocurrencies are “extremely speculative,” according to the company’s website, and “their long-term investment case is poor.”

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