Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Tech shares could retake market reins as earnings heat up

Stock MarketsJan 22, 2021 18:25
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Reuters.

By Lewis Krauskopf

NEW YORK (Reuters) - A bevy of major U.S. earnings reports next week led by Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT) and Facebook (NASDAQ:FB) could help technology 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, technology-related stocks took a backseat late last year to so-called value or cyclical plays, whose businesses are expected to gain the most from the economic revival promised by vaccines against COVID-19.

That shift has stalled in recent days as investors weighed lackluster outlooks from big banks and a blockbuster quarterly report from Netflix (NASDAQ:NFLX) that lifted its shares by 17%. The Russell 1000 growth index was up 3.3% in the past week as of Friday morning, while its value counterpart fell 1.5%.

Next week's crop of fourth-quarter results - with about a quarter of the S&P 500 reporting - could help determine whether the resurgence in growth stocks will continue, potentially threatening the recent rally in value and cyclical shares, said Chuck Carlson, chief executive officer at Horizon Investment Services.

“That is probably going to be the story of earnings season,” he said. “What will earnings mean in terms of the sustainability of this rotation that has occurred in the last eight, nine weeks.”

Steady growth and resilience in the face of the coronavirus pandemic made technology stocks desirable to investors, who poured money into the sector as widespread lockdowns devastated swaths of the U.S. economy.

But a resumption in tech outperformance could also revive concerns over investor crowding into popular names. The biggest five technology-related companies account for about 22% of the weight of the S&P 500.

Aside from Apple and Microsoft, other tech sector companies due to report next week include payment processing firms Visa (NYSE:V) and Mastercard (NYSE:MA) and semiconductor company Advanced Micro Devices (NASDAQ:AMD). Tesla, whose explosive share price turned the electric car maker into one of the world's most valuable companies, reports on Wednesday.

So far, corporate profits have been strong across the board: Of 66 S&P 500 companies that have reported earnings, 87.9% have beaten Wall Street estimates, well above the long-term average of 65%, according to IBES data from Refinitiv.

Investors are particularly watching corporate outlooks, given the expectation of an economic rebound this year. Earnings 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 profit growth of 14% in 2021 is below the S&P 500 overall and lags areas such as financials, industrials and materials. “The risk is in situations where you have had such a good 2020, which is going to be capped off by this reporting next week, what do you do for an encore?” said Walter Todd, chief investment officer at Greenwood Capital.

Demand for Apple's iPhone 12 will be a key issue 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% rise in quarterly earnings. Kim Forrest, chief investment officer at Bokeh Capital Partners, is eager to learn how well Microsoft is making inroads with its work-from-home products. The software giant is expected to post an 8.7% rise in earnings.

Facebook, estimated to report a 25% rise in earnings, could field questions around any fallout for the social media business from the U.S. elections and banning of President Donald Trump from various platforms, investors said.

Earnings season is heating up as the S&P 500 has risen to records to start 2021, worrying some investors who say corporate results in the coming year will need to justify high stock valuations. "Stocks have had a great run since October and you have to wonder with all the talk about the market possibly pulling back, when will it come or what will cause it," Pavlik said.

Tech shares could retake market reins as earnings heat up
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email