(Bloomberg) — Most of Big Tech’s earnings have come out and the conglomerates made profits that beat Wall Street estimates. The bad news: The chances of a repeat performance diminished in the fourth quarter.Thank you for reading this post, don't forget to subscribe!
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Apple Inc., Alphabet Inc., Meta Platforms Inc. And Tesla Inc. All gave investors reason to be concerned about growth. From Apple’s muted holiday approach to Google parent Alphabet’s weak cloud computing sales results, a recurring theme for the group was caution. Meta warned that the coming year looks less predictable, while Tesla expressed concerns that demand for electric cars is beginning to weaken.
That’s causing angst for investors, even as the Nasdaq 100 stock index rose 6.5% last week and had its best week in a year.
“It’s all about a failure of future guidance,” said Scott Collier, chief executive of Advisers Asset Management. “Big tech stocks were priced for historical perfection, leaving investors disappointed after those companies lagged behind.”
Tech stocks are in a volatile situation now. The seven largest tech stocks are down an average of about 9% from 52-week highs. Apple alone has lost more than $300 billion in market value.
The selloff has made valuations cheaper, but they are still expensive and with future expansion less certain, investors are reluctant to pay for shares. Share prices of the seven largest companies in the S&P 500 index trade on average 31 times their expected profits, according to data compiled by Bloomberg. This is almost double the multiple of the other 493 stocks in the benchmark.
The profits of the seven biggest so-called growth companies in the S&P 500 – Apple, Microsoft Corp., Alphabet, Amazon.com Inc., Nvidia Corp., Meta and Tesla – are set to grow 50%, according to data compiled by Reuters. Bloomberg Intelligence. Despite Tesla’s earnings miss, the group is set to surpass the 36% growth estimate sought before earnings season begins. Nvidia is the last company to report on November 21.
the story continues
For Keith Lerner, co-chief investment officer of Truist Advisory Services, the pressure on Big Tech is a sign that the correction in the S&P 500 is close to running its course, setting the stage for outperformance in the last two months of the year. . Which is a good time for stocks.
“We are in a better seasonal period for the market, with rates stabilizing, mixed economic data and upbeat news on AI,” he said. “Due to the poor performance of many investors, partly due to missing out on tech earlier this year, we think we may see some investors chase tech later in the year for fear of being left behind “
Of course, the technology sector in the S&P 500 still commands a roughly 36% premium to the index on a forward price-to-earnings basis, according to data compiled by Bloomberg Intelligence.
That’s why Collier says he still sees more pain for big growth stocks that may have gotten ahead of themselves. His firm, Advisors Asset Management, has opted to own shares of Microsoft on the condition that the company’s large artificial intelligence investment proves profitable.
“There’s a lot of hype around AI, but not every company is market ready,” he said. “Stocks may be bullish towards the end of the year, but I wouldn’t say it’s that obvious for tech stocks or even the broader market.”
After the S&P 500 posted three consecutive monthly declines, the gauge recorded its best week of 2023 after the Federal Reserve signaled on Wednesday that a rise in long-term Treasury yields would reduce the impetus to raise interest rates again. Will go.
Still, the battle between tech stocks and bond yields could continue in the coming weeks, potentially hurting money managers who have flocked back to U.S. megacap companies as yields fell.
“Everything could change in an instant if there was economic or geopolitical turmoil, which would directly impact stocks that are a concentrated market in technology companies,” said Max Wasserman, senior portfolio manager at Miramar Capital. “The underlying threats are not being ignored.” “So be cautious and not be too optimistic on megacap tech.”
tech chart of the day
Nasdaq 100 futures edged higher on Monday, putting the tech-heavy index on track for a seventh straight session of gains. That would be its longest winning streak since January as the benchmark surged amid optimism that central bank interest rates are near their peak.
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–With assistance from Tom Contiliano and Subrata Patnaik.
(adds chart of the day, news section)
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