Futures for the S&P 500 index, Dow Jones industrial average and Nasdaq 100 rose solidly Sunday night after the major stock market averages suffered their worst weekly losses in two years.
Facebook (FB) plunged 14% in stock market trading last week over its data privacy scandal. A top U.S. senator said Sunday that the social giant had not been “fully forthcoming” as polls should the public losing faith in Facebook vs. rivals such as Apple (AAPL), Amazon.com (AMZN) and Alphabet (GOOGL)-unit Google. Also keep an eye on IBD 50 software leader Red Hat (RHT), which reports earnings late Monday.
The Nasdaq composite plunged 6.5% last week, crashing well below its 50-day moving average, as China trade tariffs, Facebook and a somewhat hawkisk Fed rate hike outlook took their toll. The S&P 500 index lost 6%, ending just above its 200-day line, while the Dow Jones skidded 5.7%, approaching its 200-day. The S&P 500 index has begun a key test as the stock market uptrend is under growing pressure.
One positive sign: The put/call ratio rose to 1.25 on Friday. Readings over 1.15 often indicate a short-term stock market bottom.
S&P 500 index futures rose 0.6% vs. fair value. Dow Jones futures advanced 0.6%. Nasdaq 100 futures rallied 0.9% above fair value.
Treasury Secretary Steven Mnuchin said on “Fox News Sunday” that he’s “cautiously hopeful” that the U.S. and China can agree on terms so President Trump does not impose tariffs on $60 billion in Chinese imports. Chinese and U.S. officials, including Mnuchin, are in talks to widen U.S. access to China’s market in manufacturing and financial services.
Facebook Losing Trust With Public, Government
Facebook’s fallout continues from the Cambridge Analytica furor, in which the U.K. firm that aided Donald Trump’s presidential campaign had access to data from tens of millions of Facebook users. While Facebook said Cambridge should have never had access, the issue highlights concerns about users giving so much control over their personal to a massive platform seen as critical for communicating.
A Reuters/Ipsos online poll released Sunday found that 41% of America trust Facebook to obey personal information privacy laws, vs. 66% for Amazon, 62% for Alphabet’s Google, 60% for Microsoft (MSFT).
Just 53% said they trust Apple, even though Apple has stressed data privacy and not selling user data to marketers. Apple CEO Tim Cook said “well-crafted” regulations are necessary.
A German poll by Kanta EMNID for the newspaper Bild found that 60% think social media has a negative effect on democracy vs. 33% who say it’s positive.
The U.K. government will order Facebook, Alphabet’s Google and other tech companies to simplify their data management policies for consumers, the U.K.’s Sunday Times reported.
Sen. Mark Warner, ranking Democrat on the Senate Intelligence Committee, said on NBC’s “Meet the Press” Sunday that Facebook had not been “fully forthcoming” over Russia’s meddling in the 2016 presidential election or how Cambridge Analytica had used Facebook user data.
Warner repeated calls for CEO Mark Zuckerberg to testify before Congress, adding that internet companies including Facebook haven’t wanted to tackle “the dark underbelly of social media.”
Zuckerberg apologized for “a breach of trust” in full-page ads that ran Sunday in the New York Times, Washington Post, Wall Street Journal and the U.K.-based Observer.
“We have a responsibility to protect your information. If we can’t, we don’t deserve it,” said the plain-text ad with a small Facebook logo.
Facebook Stock Questions
A question for investors is whether or not Facebook’s woes have been priced into the stock, which had shown troubling signs well before last week’s plunge.
Will advertisers pull or slash spending on the social site for an extended period? Facebook and Google have been losing market share in online ads to Amazon, according to a new report
Will Facebook users reduce their time on site further, or begin to drop off? Will new laws or public pressure force changes in Facebook’s data privacy that boost expenses or hurt revenue?
Red Hat will report fourth-quarter earnings after Monday’s market close. The open source Linux software provider has been boosting growth from new products aimed at hybrid cloud computing.
EPS will grow 33% to 81 cents, according to Zacks Investment Research. That would be faster than Q3’s 20% gain. Several other IBD 50 stocks are expected to show even-greater profit growth acceleration.
Red Hat revenue is expected to rise 21% to $762 million. That would end a three-quarter string of gradually accelerating top-line growth, though it wouldn’t take a big beat to surpass Q3’s 22% sales gain.
Red Hat fell 4.1% to 147.90 last week, but it’s still near record highs, extended from a proper buy point. It also was much better than the major stock market indexes.
In fact, Red Hat is one of several top software stocks with relative strength lines at record highs. The relative strength line tracks a stock’s performance vs. the S&P 500 index. It’s a good way to spot the true stock market leaders in good markets or bad.