Tech stocks could regain market reins as earnings surge By Reuters

© Reuters.

© Reuters.

By Lewis Krauskopf NEW YORK (Reuters) – A group of top US earnings reports for next week led by Apple (NASDAQ :), Microsoft (NASDAQ 🙂 and Facebook (NASDAQ 🙂 could help make stocks in technology and growth reaffirm their dominance after a recent race for banks, energy and other potential beneficiaries of an economic reopening. After leading markets higher for most of 2020, tech-related stocks took a backseat late last year in so-called value or cyclical plays, whose companies are expected to benefit the most from the Economic revival promised by COVID-19 vaccines. That turnaround has stalled in recent days as investors weighed the lackluster prospects of big banks and a blockbuster quarterly report from Netflix (NASDAQ 🙂 that soared its shares by 17%. The Russell 1000 Growth Index rose 3.3% last week through Friday morning, while its value counterpart fell 1.5%. Next week’s harvest of fourth-quarter results, with about a quarter reported, could help determine whether the resurgence in growth stocks will continue, potentially threatening the recent rally in value and cyclical stocks, he said. Chuck Carlson, CEO of Horizon Investment. Services. “That will probably be the story of the earnings season,” he said. “What will the gains 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 tech stocks desirable to investors, who poured money into the sector as widespread lockdowns devastated swaths of the US economy. But a resumption of outperformance technology could also reignite concerns about investor concentration in popular names. The top five tech-related companies account for about 22% of the S&P 500’s weight. Aside from Apple and Microsoft, other tech companies that will report next week include payment processing companies Visa (NYSE 🙂 and Mastercard ( NYSE 🙂 and the semiconductor company Advanced Micro Devices (NASDAQ :). Tesla (NASDAQ :), whose exploding share price made the electric car maker one of the world’s most valuable companies, reports Wednesday. So far, corporate earnings 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 attentive to the corporate outlook, 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 tech sector earnings held up relatively well in 2020, its expected earnings growth of 14% in 2021 is below the S&P 500 overall and lags behind in areas such as finance, industry and materials. “The risk is in situations where you have had such a good 2020 that you will be crowned by this report next week, what can you do to repeat?” said Walter Todd, chief investment officer at Greenwood Capital. Demand for Apple’s iPhone 12 will be a key issue when the company reports Wednesday, said Robert Pavlik, senior portfolio manager at Dakota Wealth Management. On average, analysts expect the company to report a 13% increase in quarterly earnings. Kim Forrest, chief investment officer at Bokeh Capital Partners, is eager to see how well Microsoft is progressing with its work-from-home products. The software giant is expected to post an 8.7% increase in profits. Facebook, which is estimated to report a 25% increase in profits, could answer questions about the consequences of the US elections for the social media business and President Donald Trump‘s ban on various platforms, investors said. The earnings season is heating up as the S&P 500 has hit records to start in 2021, which worries some investors who say next year’s corporate results should justify the stock‘s high valuations. “Stocks have been on a big run since October and you have to wonder with all the talk that the market is possibly going backwards, when will it come or what will cause it,” Pavlik said.