This week, Cut the Crap Investing founder Dale Roberts breaks down the biggest financial headlines and provides context for Canadian investors.
Tech is in the driver’s seat, again
This week delivered broad earnings results—an earnings bonanza—where the number of companies reporting and the dollar value of those results were unusually large. Yet despite banking turmoil and recession worries, a handful of large-cap technology stocks once again carried most of the S&P 500’s gains in the first quarter of 2023. That concentration is familiar to U.S. markets, and we’re seeing it repeat this season.
“Nothing new. The returns for the S&P 500 driven by a handful of stocks. More than 5% of the S&P 500’s year-to-date gain of 6.6% is down to just seven tech titans.”
— Cut The Crap Investing
U.S. stocks rose midweek as Microsoft’s strong results lifted other large technology names. On Wednesday, nine of the 11 S&P sectors were trading down, while tech climbed more than 2% and added another 2% on Thursday. Futures dipped on Friday after Amazon’s shares surged Thursday but then retreated.
Meanwhile, regional banking issues resurfaced. First Republic Bank’s stock plunged nearly 50% after it reported more than USD$70 billion in deposit outflows for the quarter, and the stock continued to fall. Observers described First Republic as effectively a “zombie bank,” noting that the bank’s struggles could reduce the need for other banks to borrow from the Fed—potentially containing the broader damage.
“There’s been a bit of a tug-of-war in markets over the last 36 hours between the dominance of U.S. tech pulling aggressively on one side against the still shaky foundations of U.S. regional banks on the other. … Meta’s positives after-the-bell earnings have helped again overnight but the battle is set to continue.”
— Jim Reid, Deutsche Bank
Google and Microsoft were among the week’s most prominent stories. The market is rewarding companies that embrace artificial intelligence; even mentioning AI frequently can influence enthusiasm. Microsoft’s shares jumped after its earnings beat expectations, while Alphabet (Google) sold off despite beating consensus on revenue and earnings.
The divergent performance illustrates how disruption can reshape competition. Microsoft is leveraging AI in its Bing search product and expanding its partnership and investment in OpenAI—moves that position Microsoft to challenge Google’s search dominance.
Microsoft earnings highlights
Microsoft reported fiscal third-quarter results that topped expectations and highlighted growth in AI and cloud services. For the quarter ending March 31, Microsoft earned $2.45 per share on $52.9 billion in revenue, versus $2.22 per share on $49.4 billion a year earlier. Analysts had expected roughly $2.23 per share on $51 billion in revenue.
Cloud services generated $17.5 billion in revenue, up 11% year-over-year. Intelligent Cloud revenue rose 16% to $22.1 billion, while More Personal Computing, which includes Xbox content and Windows commercial products, saw declines in some subsegments.
CEO Satya Nadella described the results as the start of “a new era of computing” where advanced AI models meet natural language interfaces.
Alphabet earnings highlights
Alphabet missed investor enthusiasm despite beating expectations and expanding its share buyback. The company reported $69.8 billion in revenue, up 3% year-over-year, beating consensus by about $1 billion. Earnings per share were $1.17 versus $1.07 expected, even after $2.6 billion in charges related to workforce and real estate reductions.
Management highlighted solid Search performance and momentum in Cloud.
Revenue by segment included:
- Google Search & other advertising: $40.36 billion, +1.9%
- YouTube ads: $6.69 billion, -2.6%
- Google Network ads: $7.5 billion, -8.3%
- Google other products: $7.41 billion, +8.8%
- Google Cloud: $7.45 billion, +28.1%
- Other Bets: $288 million, -34.5%
Meta Platforms earnings highlights
Meta, the parent company of Facebook, beat expectations on both revenue and earnings and saw a sharp share price rise after management highlighted AI initiatives.
- GAAP EPS: $2.20, beating by $0.23
- Revenue: $28.65 billion, +2.7% year-over-year, beating by $990 million
- Family daily active people (DAP): 3.02 billion, +5% year-over-year
- Family monthly active people (MAP): 3.81 billion, +5% year-over-year
- Facebook daily active users (DAUs): 2.04 billion, +4% year-over-year
- Facebook monthly active users (MAUs): 2.99 billion, +2% year-over-year
CEO Mark Zuckerberg emphasized the company’s long-standing AI work across recommendations, ranking, ads, and integrity systems—an area the market rewarded.
Meta’s reach—more than three billion people across its family of apps—remains a powerful asset even as ad monetization faces pressure.
Playing defence with the consumer staples sector
For retirees or those nearing retirement—the “retirement risk zone”—a lower-risk portfolio makes sense. Beyond bonds and cash, defensive sectors such as healthcare, consumer staples, and utilities can reduce volatility and offer some inflation protection. This earnings season reinforced the resilience of those businesses and their expectation of continued growth despite recession risks.
Four consumer staples results stood out:
Pepsi earnings highlights
Pepsi reported non-GAAP EPS of $1.50, beating expectations by $0.11, and revenue of $17.85 billion, up 10.2% year-over-year and ahead by $580 million. The company now forecasts 8% organic revenue growth for 2023 (up from 6%) and 9% core constant-currency EPS growth (up from 8%).
Kimberly-Clark earnings highlights
Kimberly-Clark reported GAAP EPS of $1.67, beating by $0.30, and revenue of $5.2 billion, up 2% year-over-year and ahead by $140 million. Organic sales rose 5% and gross margin improved 340 basis points to 33.2%. The company now expects operating profit to increase in the low double digits, upgraded from a prior mid-to-high single-digit outlook.
Procter & Gamble earnings highlights
Procter & Gamble posted non-GAAP EPS of $1.37, beating by $0.05, and revenue of $20.07 billion, up 3.5% year-over-year and ahead by $750 million. Net sales rose 4% and organic sales increased 7%. P&G raised its organic sales growth outlook to roughly 6% for the fiscal year.
Colgate-Palmolive earnings highlights
Colgate-Palmolive reported non-GAAP EPS of $0.73, beating by $0.03, and revenue of $4.77 billion, up 3.5% year-over-year and ahead by $190 million. Net sales rose 8.45% and organic sales were up 10%. Management projects 3–6% sales growth for the remainder of the year, with organic growth across every division in the quarter.
As for the energy space
Energy earnings showed solid franchise profitability despite lower oil prices year-over-year.
Exxon Mobil earnings highlights
Exxon reported first-quarter non-GAAP EPS of $2.83, beating by $0.23, with revenue of $86.56 billion (down 4.4% year-over-year), missing estimates by roughly $3.5 billion. For context, Exxon’s prior quarter showed stronger revenue and earnings amid higher oil prices.
Chevron earnings highlights
Chevron reported first-quarter non-GAAP EPS of $3.55, beating by $0.14, and revenue of $50.79 billion, down 6.6% year-over-year but ahead of expectations by about $1.3 billion. Like Exxon, Chevron’s recent results reflect the impact of lower oil prices compared with the previous year.
Energy investors may be reassured by the sector’s profitability even as U.S. WTI crude has declined more than 25% over the past year.
The creator of the 4% rule is mostly in cash
Bill Bengen, who popularized the 4% safe withdrawal rule for retirees, manages portfolios actively and revealed that his personal allocation is very conservative: roughly 2% in stocks, 3% in gold, and about 90% in cash-like vehicles such as U.S. certificates of deposit. He says he is waiting for a recession or simply prefers minimal portfolio growth—an intriguing stance from the originator of a retirement-spending guideline.
The most popular index style underperformed
The equal-weight S&P 500 ETF (RSP), which launched in 2003, has notably outperformed the traditional cap-weighted S&P 500 ETFs over the past 20 years—returning roughly 469.6% versus 348.9% for cap-weighted peers. Cap-weighted indexes can concentrate risk in the largest, often most expensive names: the top 10 holdings in SPY, VOO, and IVV make up more than a quarter of those funds, while an equal-weight approach limits each stock’s impact.
Handoff to Kyle
Columnist Kyle Prevost will return next week, and the timing is noteworthy: the U.S. Federal Reserve is expected to announce another rate decision. Consensus calls for a 0.25% hike, after which the Fed may pause. Signs this week pointed to a cooling U.S. economy—first-quarter GDP came in softer than expected—and markets treated slower growth as a positive for inflation prospects.
Stock indices rallied late in the week as investors interpreted weaker growth as a potential brake on inflation: the Dow, S&P 500, and Nasdaq all posted solid gains as the market priced in a slowing economy and a possible easing of inflationary pressures.
Dale Roberts advocates low-fee investing and writes at cutthecrapinvesting.com. Follow his market commentary on Twitter for daily updates and analysis.