Big Tech Has a Big Earnings Problem

Fidelity recently reported that average retirement account balance fell 23% last year.

That’s 23% of your money. The money you saved for your retirement … your grandchildren … your legacy.

Almost a quarter of it was wiped out last year.

That hurts. And you’re not alone. I, just like you, have seen the wealth in my long-term accounts drop in the last year. (My trading accounts are a different story, which we’ll get to.)

And even pension funds — the money many depend on for income in their golden years — are in trouble too.

State and local pension funds lost almost 6% last year (thankfully their investment in private equity and real estate kept them from steeper losses).

Still, that loss leaves pensions almost $1.5 trillion short of what they need to pay out in benefits.

Again, that’s your money. It took a big haircut last year … through no fault of your own.

Why?

One big reason is technology stocks.

During COVID, with unprecedented levels of monetary stimulus and record-low interest rates, technology and growth stocks were prime pickings for retirement and pension funds.

And rightfully so. The collective value of the five largest stocks in the sector — Meta, Amazon, Netflix, Apple and Google’s parent, Alphabet — climbed 50% in the first half of 2020.

Now, tech stocks are starting to fall back to reality.

Yes, starting to. I believe the pain is only going to get worse…

But I also believe you don’t have to be a victim.

To understand why we’re in just the early innings of a tech stock shakeout, and how you can make money in the decline, read on…

The Silicon Valley Dirt Nap

The sudden and rapid decline in the tech sector is forcing companies to make tough decisions.

Growth during and immediately after the COVID pandemic had tech companies hire talent at light speed. And with the perks they were able to offer, that talent came in droves.

Recent losses have forced companies to cut their workforces … with more than 150,000 jobs shed in 2022 and even more than that in just the first few weeks of 2023.

The New York Times summed it up best:

“Silicon Valley as we know it — with its radically transparent company cultures, empowered employees, flat hierarchies and rarefied perks like nap pods and free food — is quickly disappearing. And it’s unlikely to return.”

With the economy slowing and inflation still running rampant, Big Tech companies are having to quickly cut back on the excesses of the pandemic bubble.

Some, however, have been too slow to change. And big money investors are starting to take notice — trying to force these companies to do away with unnecessary and costly perks … like nap pods and free food.

Those efforts are going to take time. And the success of those efforts will be measured by a company’s profitability.

The reality is that not all of those efforts will be successful. Tech companies both big and small will fail in the years to come.

We’re already seeing signs of trouble in the first round of earnings reports covering the fourth quarter of 2022…

Earnings Message to Silicon Valley

The quarterly earnings season is just getting underway. And with revenues slowing as companies scramble to cut costs, it likely won’t be a pretty picture.

Remember, earnings are revenue minus expenses. That’s why you’re seeing such huge layoffs in the tech sector right now. Companies that over-hired in 2020 and 2021 are trying to make a big impact on expenses before they report earnings.

Some of the largest tech companies won’t report for another week or so … but the estimates coming out are telling.

According to FactSet, earnings growth of the information technology sector is expected to be nearly 10% lower than a year ago. That’s worse where it was at the end of 2022.

It’s even worse for the communication services sector. Those companies are expected to report an earnings decline of 20% compared to the same quarter a year ago.

According to individual company estimates, Alphabet could report a 21% drop in earnings while Meta’s could drop 40% … or more.

Because of high costs and declining revenues, these companies’ earnings are in freefall.

Overall, Big Tech no longer trades at such the big premium it used to … and it shouldn’t.

It’s a cyclical effect … as earnings drop, stock prices fall … as prices fall, investors panic … as investors panic, stock prices fall even more.

As more tech earnings come in, investors will reevaluate their positions.

Smaller tech companies, in a worse position to withstand such big declines in revenue, will suffer even more, and faster.

The message here is pretty clear: Silicon Valley is headed for a massive shakeout.

Only the strongest companies will survive this shakeout. And even they will sustain major damage in the coming months and years.

That’s bad news for anyone with too much exposure to tech companies.

But it’s great news for smart investors who spot these trends and know how to play them.

Profit From the Shakeout Winners and Losers

All the way back at the start of 2020, I saw a way to profit from both the winners and the losers of this tech stock shakeout. And I’ve spent the last three years tuning that strategy for the moment we’re in right now.

It involves trading options on both tech and non-tech stocks when they’ve reached points of peak optimism or pessimism.

As for how it’s working … I’ll just give you a snapshot of the last few weeks of trading it:

As you can see, not every trade of the last few weeks was a winner. But, the winners more than made up for the one loser.

I want to make sure you are armed with this information to help you recover the retirement you deserve.

And I believe this strategy is one of your best options to achieve it.

Make sure to click here now and find out more.

Regards,


Michael Carr
Editor, One Trade

Market Edge: Weakness Across the Board By Charles Sizemore, Chief Editor, The Banyan Edge

One of Mike’s ongoing themes this year has been the shakeout in tech. And we’re seeing more evidence of that this week. Microsoft released earnings, and its outlook for 2023 wasn’t great. Most notably — its cloud business, which was the greatest source of growth in recent years, is slowing. That’s not a disaster by any stretch of the imagination, but Microsoft’s rich valuation — it trades at 26 times earnings and nearly 9 times sales — is based on the expectation that growth in its cloud business would continue at a blistering rate. It’s not just Microsoft, of course. Texas Instruments saw its sales slip to $4.17 billion from $4.53 billion, as demand for semiconductors continues to wane. Alphabet, parent company of Google, is now under federal antitrust investigation … and this comes after the company announced it was laying off 12,000 workers. And Elon Musk … the former golden boy who could do no wrong as CEO of Tesla, the world’s leading electric vehicle maker … found himself in court this week defending himself from a shareholder lawsuit. The market always leads the headlines. We would see tech stocks trending higher before we see the news getting better. But stocks have been trading mostly sideways throughout the second half of January, and it’s looking like 2022’s bear market in growth and tech stocks still has longer to run. And here’s where it gets really ugly… Even defensive sectors are looking weak these days. Kimberly-Clark, the maker of Huggies diapers, Kleenex tissues and a host of other consumer staples, released a bomb of an earnings report on Wednesday. Sales came in higher but only because price hikes offset unit declines. And in the outlook, management said they expected both sales and earnings to be sluggish in 2023. The culprit is inflation. It’s causing Kimberly-Clark’s costs to rise while also pushing consumers to trade down to cheaper generic off brands. No bear market lasts forever, and this too will pass —eventually giving way to a new bull market. But in the meantime, it makes sense to focus less on hitting a home run and focus more on hitting a lot of solid base hits and doubles. That’s where shorter-term trading strategies really come into play. You’re not throwing down a massive bet on a stock you believe to be a “sure thing.” You’re making a series of repetitive small bets that, over the course of a few months, add up to serious profits. Mike Carr, as he showed you today, is making those small bets on the volatile tech stocks making mincemeat of your 401(k) right now. And he’s clearly having a great time doing it. To learn more about how Mike plans to trade this ongoing Silicon Shakeout, get all the details right here. Charles Sizemore Chief Editor, The Banyan Edge