Big tech earnings could be another test for global markets

NEW YORK:

Investors are catching up on a deluge of earnings reports from Wall Street’s tech and internet giants as the high-growth stocks that have propelled the markets for years face regulatory pressures, supply chain problems and rising government bond yields.

Apple, Microsoft, Google parent Alphabet, Amazon.com and Facebook are all set to report their earnings next week. Collectively, those five names account for more than 22% of the weight in the S&P 500, giving their stocks a massive influence on the broader index.

In general, companies representing 46% of the market value of the S&P 500 will publish quarterly results next week, Goldman Sachs said.

Strong earnings reports have helped the S&P 500 soar to new all-time highs, with the benchmark index rising 5.5% so far in October. In September, the index recorded its largest monthly percentage decline since the start of the pandemic in March 2020.

While investors expect most major tech companies to show solid gains, many will also be listening for indications as to whether they can sustain that growth. It will also focus on any forecasts related to supply bottlenecks, such as the chip shortage that has affected many global industries, as well as their views on how sustainable the recent rise in consumer prices will be. There are already some signs that tech companies may need to set a high bar. Intel and IBM fell sharply after their reports disappointed this week.

Meanwhile, Facebook shares fell 5% on Friday after Snap, the owner of Snapchat’s photo messaging app, said the privacy changes Apple has made to iOS devices are hurting its ability to target and measure its digital ads.

“I would expect the potential for more volatility,” said James Ragan, director of wealth management research at DA Davidson. “Maybe we’ll get the opportunity for some of these big companies to disappoint a little bit.”

Market gains this month were led by sectors considered particularly sensitive to fluctuations in the economy, including energy and financials, which gained 11% and 8% respectively. The S&P 500’s technology sector is up 6% this month.

Many tech-focused companies have been boosted in the wake of the pandemic, amid a shift in consumer behavior amid economic lockdowns and a shift to work from home.

“The question then is: 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 big technology?”

A BofA Global Research survey earlier this month found that fund managers are slightly underweight technology relative to their average positioning over the past 20 years.

Published in The Express Tribune, October 24^e, 2021.

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