Big Tech led a sharp rebound in US markets to begin 2023. Not so fast, according to their earnings report on Thursday.

Apple Inc, Alphabet’s parent company Google, and Amazon.com all reported disappointing end-of-year quarter results. The reports raised new concerns about global economic demand, the impact of higher interest rates, and whether the market’s January rally was premature.

In China, early signs of consumer spending recovery were insufficient to change this.

Apple, the world’s largest publicly traded company, fell short of expectations, hampered by lower iPhone sales and Chinese manufacturing disruptions.

Because of lower demand, Amazon’s operating profits may fall this quarter, and Alphabet’s online advertisers may reduce their spending as well.

Shares of the three companies fell after the results were released, and the market was expected to fall Friday after a euphoric rally on Thursday.

“Maybe the tech stocks rallied a little bit too much into these numbers, so the market will be taking a deep breath and saying, ‘OK, well these companies aren’t bulletproof,'” said Daniel Morgan, senior portfolio manager at Synovus Trust Company in Atlanta, Georgia.

These three companies, along with Microsoft, have led the S&P 500 in terms of market capitalization in 2023. Year to date, the index is up nearly 9%, with Amazon up 34%. Big Tech soared on Thursday after Facebook-owner Meta Platforms Inc. released a strong quarterly report.

This comes after the group was battered throughout 2022, trailing the S&P 500, which fell nearly 20%.

Some investors saw silver linings in Apple and other bellwether companies, such as Starbucks, which reported earnings on Thursday. They noted that Chinese lockdowns stifled sales for many companies in the world’s second-largest economy, but they anticipate a rebound in the coming year.

“When things started to reopen in December (in China), we did see an increase in traffic to our stores as compared to November and an increase in demand as December rolled around,” Apple Chief Executive Tim Cook told Reuters.

Lockdowns in China harmed both production and demand, according to Cook, and the company faced headwinds from a strong US dollar, which reduced revenue.

“Currency was a headwind but will be a tailwind in Q1,” said Nancy Tengler, chief executive of Laffer Tengler Investments in Scottsdale, Arizona, referring to the dollar’s weakening trajectory.

“The supply chain was a problem more so than demand, and that seems to have been right-sized.”

Similarly, Starbucks reported that comparable sales in China, the company’s fastest-growing market, fell 29% year on year, but that beginning in January, it saw “very encouraging” recovery momentum.

Other consumer watchdogs in the United States painted a mixed picture. Clorox, the consumer staples company, said product volumes fell in three of the company’s four business segments in the fourth quarter, while Ford predicted a difficult year ahead.

They, like other businesses, are still dealing with higher interest rates, which are slowing demand. This year’s stock market rally has been supported by a bond rally, as lower yields make high-value stocks more appealing. Alphabet and Meta’s cost-cutting led some investors to believe that interest rates were influencing demand.

“In many respects we’re waiting for that other shoe to drop – the impact of higher rates on the economy, inflation, earnings and jobs,” said Jack Ablin, co-founder and chief investment officer at Cresset Capital, which manages $30 billion. “Profits tend to trough nine months after overnight rates peak and we haven’t even seen the peak in overnight rates yet.”

(Adapted from Reuters.com)

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