Breaking News
Investing Pro 0
🚨 Our Pro Data Reveals the True Winner of Earnings Season Access Data

Wall Street Week Ahead: Tech haves and have-nots face third-quarter tests

Stock Markets Oct 18, 2019 08:37AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
 
US500
-0.22%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
INTC
+0.72%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
MSFT
-0.72%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
ALVG
+0.54%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
AAPL
-0.94%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
LRCX
+2.55%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 

By Lewis Krauskopf

NEW YORK (Reuters) - Technology companies, which make up the largest swath of the U.S. stock market, are expected to post a nearly 8% drop in third-quarter profits as reports roll in next week from many of the sector's biggest corporations.

But below the surface, the estimates reveal a wide range among the companies that comprise the S&P 500 information technology sector (SPLRCT), which includes Apple Inc (O:AAPL), Microsoft Corp (O:MSFT) as well as communications equipment, hardware and IT services companies.

The overall sector's earnings performance is being dragged down by semiconductors, which are expected to post a nearly 27% plunge in quarterly profits, according to IBES data from Refinitiv, as analysts point to impact from the U.S.-China tariff conflict and generally weak demand.

Growing business IT spending continues to support other pockets of tech, according to investors. Software firms are poised for a nearly 11% gain in profits from a year ago, according to the IBES data from Refinitiv.

"You may have two dynamics going on in tech in the opposite direction," said John Augustine, chief investment officer at Huntington National Bank in Columbus, Ohio. "Can software live up to the numbers and will semis beat the numbers?"

Among software companies, Microsoft, the largest U.S. company by market value, reports results on Wednesday, while earnings are also due next week from semiconductor stalwarts Intel Corp (O:INTC) and Texas Instruments Inc (O:TXN).

Other tech earnings next week include payment processors PayPal Holdings Inc (O:PYPL) and Visa Inc (N:V), with iPhone maker Apple, whose results ripple through its supply chain, expected to post a 2.7% drop in earnings when it reports the following week.

One of the early reporters, International Business Machines Corp (N:IBM), kicked off the season on a sour note on Wednesday, with quarterly revenue that missed estimates.

(GRAPHIC - Tech's third-quarter outlook: https://fingfx.thomsonreuters.com/gfx/editorcharts/USA-STOCKS-WEEKAHEAD/0H001QXE0902/eikon.png)

Even with the disparate forecasts for the third-quarter company results, tech stocks are outshining the market broadly in 2019.

The S&P 500 tech sector, which comprises over one-fifth of the benchmark index, has climbed more than 30% in 2019, compared to a 19% rise for the S&P 500 (SPX).

Federal Reserve easing of interest rates has helped the performance, which comes despite uncertainty about the health of the global economy and about U.S.-China trade tensions.

Tech is "the primary growth engine of the economy," said David Joy, chief market strategist at Ameriprise Financial (NYSE:AMP) in Boston.

"China is an issue for them, but at the same time they continue to grow and they continue to innovate," Joy said. "You have to have exposure in technology. We just think as you look around at the market landscape, it's one of the better places to be right now."

The tech sector's strength is broad-based, including gains so far this year of about 30% or more from the four biggest industry groups by market value within the tech sector: software , IT services , hardware, storage & peripherals and semiconductors .

"The IT budget continues to garner more dollars from the general budget of Corporate America," said Michael Seidenberg, portfolio manager for the global technology team at Allianz (DE:ALVG) Global Investors. "There will be winners and losers within the sector, but I think generally speaking that is a trend that has persisted."

Of U.S. corporations, semiconductor makers are seen as among the most affected by the U.S.-China trade tensions, which have triggered big swings in their shares.

But the stocks still have prospered: the Philadelphia SE Semiconductor Index (SOX) has climbed nearly 40% this year to all-time highs, while three chip stocks - KLA Corp (O:KLAC), Lam Research Corp (O:LRCX), Advanced Micro Devices Inc (O:AMD) - are the tech sector's biggest 2019 gainers.

Despite the steep decline in third-quarter profits projected for S&P 500 semiconductor companies, analysts are optimistic there will be improvement soon, with semiconductors expected to post an 11% rise in 2020 earnings, according to Refinitiv data.

"To me, there's a huge disconnect between the performance of these names and the underlying fundamentals," said Daniel Morgan, senior portfolio manager at Synovus Trust in Atlanta.

For software and other tech companies, the third quarter can be seasonally weak, said Kim Forrest, chief investment officer at Bokeh Capital Partners in Pittsburgh, who said she would be looking for executives to comment on whether business is being pushed back to future quarters.

But the strong employment market has supported tech stocks, Forrest said.

"This a phenomenon you see in the late stages of an expansion," Forrest said. "Hiring is up and to support all the new people that you've hired, you to add to your technology."

Wall Street Week Ahead: Tech haves and have-nots face third-quarter tests
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other 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, don’t trash it.

  •           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. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. 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.
  • Any comment you publish, together with your investing.com profile, will be public on investing.com and may be indexed and available through third party search engines, such as Google.

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
Continue with Google
or
Sign up with Email