Investors are homing in on a flood of earnings reports from Wall Street’s tech and Internet giants, as the high-growth stocks that have led markets higher for years face pressures from regulation, supply-chain snags and rising Treasury yields.
Apple, Microsoft, Google parent Alphabet, Amazon.com and Facebook are all set to report earnings next week. Collectively, those five names account for over 22% of the weighting in the S&P 500, giving their stock moves enormous sway over the broader index.
Overall, companies representing 46% of the S&P 500’s market value are due to post quarterly results next week, according to Goldman Sachs.
Strong earnings reports have helped lift the S&P 500 to fresh record highs, with the benchmark index rising 5.5% so far in October. In September, the index posted its biggest monthly percentage drop since the pandemic began in March 2020.
While investors expect most of the big technology firms to show robust profits, many will also be listening for indications of whether they will be able to sustain that growth. Also in focus will be any forecasts regarding supply bottlenecks, such as the chip shortage that has affected a broad swath of global industries, as well as their views on how sustainable the recent surge in consumer prices will be. There have already been some signs that tech companies may have a high bar to clear. Intel and IBM fell sharply after their reports disappointed this week.
Meanwhile, shares of Facebook fell 5% on Friday after Snap, the owner of photo messaging app Snapchat, said privacy changes implemented by Apple on iOS devices hurt its ability to target and measure its digital advertising.
“I would expect the potential for more volatility,” said James Ragan, director of wealth management research at DA Davidson. “We just might get the possibility for some of these big companies to disappoint a little bit.”
The market’s gains this month have been led by sectors seen as particularly sensitive to swings in the economy, including energy and financials, which have gained 11% and 8%, respectively. The S&P 500 technology sector is up 6% month-to-date.
Many tech-focused companies received a boost in the wake of the pandemic, amid a shift in consumer behavior amid economic lockdowns and a move to working from home.
“The question then becomes, can they keep it up?” said Sameer Samana, senior global market strategist at Wells Fargo Investment Institute. “What do the growth rates look like for large tech?”
A BofA Global Research survey showed earlier this month that fund managers are slightly underweight technology relative to their average positioning of the past 20 years.
Published in The Express Tribune, October 24th, 2021.
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