FTSE lifted by strong Shell numbers, Zuckerberg plea for patience falls on deaf ears as Meta gets mashed up by the market and Lloyds ups bad debt provisions

“US tech may be letting the side down when it comes to third quarter earnings but bumper profit from index heavyweight Shell helped lift the FTSE 100 on Thursday morning,” says AJ Bell Head of Investment Analysis, Laith Khalaf.

“Once again, the wider market seems to be pinning some hopes on central banks looking at evidence of a deteriorating economy and reacting accordingly by slowing the pace of rate rises.

“Unilever’s third quarter numbers highlighted an extremely bleak consumer outlook in both emerging and developed markets and the likes of the US Federal Reserve will increasingly need to decide how much pain they are prepared to inflict as they look to bring surging prices back under control.”

Meta Platforms

“Meta, aka Facebook, founder Mark Zuckerberg’s plea for patience has fallen firmly on deaf ears. Spouting on about the metaverse when in the here and now the social media business is struggling is about as palatable for the market as Jack banging on about magic beans to his mother when all she wants is to put food on the table.

“Whether Zuckerberg will eventually find treasure at the top of metaverse beanstalk remains to be seen but the market reaction to its third quarter numbers was brutal.

“Clearly digital advertising is not immune to a weakening economy – the first drop in ad revenue for Alphabet’s YouTube platform delivered that message loud and clear – and Meta is facing a similar problem, particularly across its Facebook and Instagram platforms.

“Radical action might be required to win back the market. This could include spinning off the metaverse assets and potentially asking users to pay for some features on WhatsApp, Instagram, and Facebook. Though Meta must tread carefully here given the competitive threat posed by the likes of TikTok.

“So far Meta is just the latest big tech company to disappoint. After a steady start to the US third quarter earnings season, things are starting to look a lot less rosy.”

Lloyds

“For years the banks like Lloyds would have been dreaming of a time when they could see a meaningful rise in interest rates, allowing them to make more money out of the traditional activity of farming customer deposits and lending out that cash to achieve a decent return.

“However, rate rises at a time of acute pressures on households and businesses are very much a double-edged sword and Lloyds is just the latest to reflect that in rising impairments and provisions for bad debts.

“It says something less than positive about the UK economy that Lloyds is putting aside more than double what analysts had anticipated to protect against this risk.

“What will really upset the apple cart with shareholders is if Lloyds shows any sign of deviating from an upward path on dividends, which is a key reason many people hold the stock.”

Shell

“Given it now plans to reward shareholders with a windfall of their own through its pledge to increase the fourth quarter dividend, calls for a further levy on Shell’s bumper profits are only likely to increase.

“In fairness, chief executive Ben van Beurden has been self-aware enough to acknowledge this fact and he could argue he has to reward shareholders who, after all, saw the first cut in the dividend since the Second World War during the pandemic.

“The optics of paying out more to investors aren’t too clever when many households are really struggling with their energy bills.

“Shell isn’t making as much money as it was in the second quarter when it posted record figures, though the company’s new habit of trailing its numbers a week or so early means there’s nothing here to really alarm investors.

“The oil and gas industry tends to be highly cyclical and things may not be as good again for Shell as they were in 2022 for some time. Oil prices are coming under some pressure as the economy slows and gas prices in Europe have fallen as storage levels increase – though whether this will last once winter really hits is open to question.”

These articles are for information purposes only and are not a personal recommendation or advice.