In this news, we discuss the Tech stocks could take over the market as earnings heat up
NEW YORK (Reuters) – A host of major U.S. earnings reports next week led by Apple, Microsoft and Facebook could help tech and growth stocks reassert their dominance after a recent run by banks, energy and other potential beneficiaries of an economic reopening.
After leading markets higher for most of 2020, tech-related stocks retreated late last year to move into value or cyclical games, which companies are expected to take advantage of. making the most of the economic stimulus promised by COVID-19 vaccines.
That shift has stalled in recent days as investors weighed in on the mediocre outlook for big banks and a hit quarterly report from Netflix that raised its shares by 17%. The Russell 1000 Growth Index rose 3.3% last week from Friday morning, while its value counterpart fell 1.5%.
Next week’s fourth quarter earnings crop – with roughly a quarter of reports on the S&P 500 – could help determine whether the resurgence in growth stocks will continue, potentially threatening the recent rally in value and cyclical stocks, said Chuck Carlson, CEO of Horizon Investment Services.
“This will likely be the story of the results season,” he said. “What will the sustainability benefits mean from this rotation that has taken place over the past eight or nine weeks.”
Steady growth and resilience in the face of the coronavirus pandemic have made tech stocks desirable for investors, who poured money into the sector as widespread lockdowns devastated swathes of the U.S. economy.
But a pickup in tech outperformance could also rekindle concerns about investor concentration in popular names. The five largest tech-related companies account for about 22% of the S&P 500’s weight.
Besides Apple and Microsoft, other tech companies due to release a report next week include payment processors Visa and Mastercard and semiconductor company Advanced Micro Devices. Tesla, whose explosive share price has turned the electric car maker into one of the world’s most valuable companies, reports Wednesday.
So far, corporate profits have been strong across the board: of 66 S&P 500 companies that reported profits, 87.9% have beaten Wall Street estimates, well above the long-term average. 65% term, according to IBES data from Refinitiv.
Investors are particularly watching the outlook for businesses given the expectation of an economic rebound this year. Profits are expected to rise 23.7% this year after falling 14.1% in 2020, according to Refinitiv.
While the tech sector’s earnings held up relatively well in 2020, its expected earnings growth of 14% in 2021 is below the overall S&P 500 and lags in areas such as finance, industrials, and retail. materials. “The risk is in the situations where you had such a good year 2020, which is going to be capped off by this report next week, what do you do for a reminder?” said Walter Todd, chief investment officer at Greenwood Capital.
Apple request iPhone 12 will be a key question when the company reports on Wednesday, said Robert Pavlik, senior portfolio manager at Dakota Wealth Management. Analysts on average expect the company to report a 13% increase in quarterly profits. Kim Forrest, CIO at Bokeh Capital Partners, can’t wait to hear how Microsoft is making inroads with its work-from-home products. The software giant is expected to post an 8.7% increase in profits.
Facebook, estimated to report a 25% increase in profits, could raise questions about the fallout for the social media industry of the U.S. election and President Donald Trump’s ban from various platforms, investors said.
The earnings season is heating up as the S&P 500 hit record highs to start 2021, causing some investors’ concern that company results in the coming year will need to justify high valuations in equities. “The stocks have had a great run since October and you have to be wondering with all the talk about the possible market pullout, when will it come or what will cause it,” Pavlik said.
Reporting by Lewis Krauskopf; Edited by Ira Iosebashvili and Susan Fenton
Original © Thomson Reuters
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