Wall St Week Ahead Tech giants’ profits could be another test for markets to new highs
NEW YORK, Oct.22 (Reuters) – Investors look to a flood of earnings reports from the tech and internet giants on Wall Street, as high-growth stocks that have pushed markets higher for years are faced with regulatory pressures, supply chain problems and rising treasury yields.
Apple Inc (AAPL.O), Microsoft Corp (MSFT.O), parent company of Google Alphabet Inc (GOOGL.O), Amazon.com Inc (AMZN.O) and Facebook Inc (FB.O) are all expected to report their returned next time in the week. Collectively, these five names represent over 22% of the weighting of the S&P 500, giving their stocks a huge influence on the broader index.
Globally, companies representing 46% of the market value of the S&P 500 are expected to release quarterly results next week, according to Goldman Sachs.
Strong earnings reports have helped lift the S&P 500 (.SPX) to new highs, with the benchmark rising 5.5% so far in October. In September, the index posted its largest monthly percentage drop since the start of the pandemic in March 2020.
While investors expect most of the big tech companies to post solid earnings, many will also be listening to whether they will be able to sustain that growth. Forecasts regarding supply bottlenecks, such as the chip shortage that has affected a wide range of global industries, as well as their views on the sustainability of the recent surge in consumer prices will also be in the center of attention.
There have already been signs that tech companies may have a high bar to cross. Both Intel (INTC.O) and IBM (IBM.N) fell sharply after their reports disappointed this week. Read more
Meanwhile, Facebook shares fell 5% on Friday after Snap Inc (SNAP.N), the owner of the Snapchat photo messaging app, said privacy changes implemented by Apple on iOS devices were hampering its ability to target and measure its digital advertising. Read more
“I would expect more potential volatility,” said James Ragan, director of wealth management research at DA Davidson. “We might just have the opportunity for some of these big companies to disappoint a bit.”
Market gains this month were led by sectors considered particularly sensitive to fluctuations in the economy, notably energy (.SPNY) and financials (.SPSY), which gained 11% and 8% respectively. . The tech sector of the S&P 500 is up 6% since the start of the month.
Many tech-driven companies have received a boost in the wake of the pandemic, amid a shift in consumer behavior amid economic lockdowns and a shift to working from home.
“The question then becomes: can they continue? Said Sameer Samana, senior global markets strategist at the Wells Fargo Investment Institute. “What are the growth rates like for big tech? “
A survey by BofA Global Research showed earlier this month that fund managers are slightly underweight in technology compared to their average positioning over the past 20 years. At the same time, they named “long tech” as the market’s most crowded trade for the fourth consecutive month.
Supply chain issues, including the semiconductor shortage, will certainly be a topic for iPhone maker Apple, while Amazon could provide a window into how the holiday shopping season may be impacted. by logistical problems.
“If… Apple says, ‘Yes, we would have sold a lot more phones without the chip shortage,” you think that’s really bad because they’re probably the first to get chips from everyone, ”said Peter Tuz, Chairman of Chase Investment Counsel.
The prospect of regulatory intervention by the US government is hanging over these giant companies as well, so investors will be eager to hear from them.
This week, the U.S. consumer watchdog said it had requested information from a number of tech giants on how they collect and use consumer payment data. Read more
A sustained rise in Treasury yields, which move in the opposite direction to bond prices, may also pose a longer-term threat to technology and other growth stocks. The valuations of these companies rely more on future cash flows, which are discounted more accurately in standard models when returns increase. The yield on the 10-year Treasury bill rose about 35 basis points last month to 1.64%.
“It wasn’t all good news on the earnings front,” wrote Art Hogan, chief market strategist at National Securities. “So far the good news has won the tussle against the bad, but we have a long and potentially bumpy road ahead.”
Reporting by Lewis Krauskopf in New York Editing by Ira Iosebashvili and Matthew Lewis
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