Scheduled to release this week are tech sector’s heavyweights. Nearly all the category killers dubbed the “FANGs” Facebook (NASDAQ:FB), Amazon (NASDAQ:AMZN), and Google (NASDAQ:GOOGL) (Netflix (NASDAQ:NFLX) reported 16th Oct blowing past internal and analyst estimates) with report earnings for the July quarter. Judging from sell-side analyst expectations, technology tops optimistic views with the most buy ratings. Yet it’s not just bullishness on the sectors individual earning which is driving prices higher but the overall US outlook.
Trumps tax plan has momentum. Speaker of the House Paul Ryan recently passed a $4.1 trillion budget legislation that will open the way for much need tax reform. Key for US business would be a massive business tax reduction to 20% from 35%. Lowering the domestic tax rate would likely result in repatriation of hundreds of billions of dollars stashed abroad. These funds would be then use for share buybacks, pay dividends and engage in M&A.
Despite global domination, these technology companies still derive a significant portion of revenue from the US. The US economic acceleration is close to 3.0% White House projections, supported by strong manufacturing and service sectors. The US consumer is going through a revival as confidence in the US economy at a 13 year high. And with unemployment at 4.2%, levels not seen since February 2001, and improving wage trend, most Americans households think the outlooks can’t get much better.
Indices such as the NASDAQ and Dow Jones Industrial Average endless bull rally have made investors nervous as the charge of overvaluation gets louder. Yet, should earning continue to justify double-digit growth, then the darling of the tech world will continue to appreciate.