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

With market at record highs, eyes on reports from chipmakers

Stock MarketsJan 17, 2020 05:04PM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items

By Caroline Valetkevitch and Noel Randewich

NEW YORK (Reuters) - Reports from Netflix, Intel and Texas Instruments next week may hint at what is to come in the December quarterly earnings season, with some investors wary of possible danger signs that could knock Wall Street after its latest surge to record highs.

The S&P 500 has gotten off to a strong start in January, up 3% so far this year, fueled by a truce in the U.S.-China trade war, low interest rates and signs the economy remains healthy.

Analysts on average expect reports to show S&P 500 earnings per share fell 0.8% in the fourth quarter, with technology earnings seen up 0.6%, according to IBES data from Refinitiv.

Investors are looking beyond fourth-quarter results at what companies may say about outlooks and plans for investment in light of the recently signed Phase 1 trade deal between Washington and Beijing.

Earnings estimates for the fourth quarter have already weakened slightly in the latest week as initial reports from big banks and a smattering of other companies filtered in.

"Most of the rally we had in 2019 was in anticipation of better earnings in 2020," said Willie Delwiche, an investment strategist at Baird in Milwaukee. "Rather than getting caught up in what the Q4 numbers are, the attention will be on what - if any - revisions you get to Q1 and Q2 numbers."

Analyst estimates for quarterly earnings tend to decline as any given quarter approaches, and any hint that estimates for 2020 are bucking that trend would be positive, Delwiche said.

The S&P information technology index (SPLRCT), which includes such market heavyweights as Apple (O:AAPL), Intel (O:INTC) and Microsoft (O:MSFT), has led Wall Street so far in 2020 with a nearly 6% gain. It is up 50% over the past year, the strongest performer over that period. The index is now trading at 22 times expected earnings, its highest multiple since around early 2005, according to Refinitiv's Datastream.

The S&P 500 is trading at about 18 times expected earnings, similar to levels it briefly hit two years ago.

"There's going to be heightened attention to guidance to increase comfort levels with valuations, given the strength we've seen in the last two months in the majority of tech names," said Michael James, managing director of equity trading at Wedbush Securities in Los Angeles.

Because of that, "you're more likely to see slight disappointments punished more severely than positive guidance is rewarded," he added.

Underscoring the importance of results from Intel on Thursday and Apple on Jan. 28, the information technology sector is expected to have accounted for nearly 22% of total S&P 500 operating earnings in the last quarter of 2019, according to S&P Dow Jones Indices.

"For a lot of the tech names, they seem to be well positioned for 2020," said Rick Meckler, partner, Cherry Lane Investments, a family investment office in New Vernon, New Jersey.

Still, in the market overall, "What has happened is the multiples expanded. And that's really the risk of the market."

Technology earnings growth for 2020 is estimated at 10.4%, which is expected to contribute 2.0 percentage points to the S&P 500's expected growth rate of 9.7%, according to Refinitiv's data, which would make tech the largest contributor.

Netflix's (O:NFLX) quarterly report on Tuesday after the bell will show how well the video streaming giant is withstanding a wave of competition led by entertainment heavyweight Walt Disney Co (N:DIS).

Netflix shares stumbled last year on worries over slowing subscriber growth and ballooning costs of high-budget productions such as The Crown and The Irishman. Its shares are down nearly 8% since April 2019, when Disney+ was unveiled. Disney's stock has risen 24% since then.

Netflix shares tend to be volatile after it reports results, which could be the case again.

Netflix options imply a 7.6% swing for the shares in either direction by next Friday, Jan. 24. Over the last eight quarters, on average, the shares moved 6% after the company reported results, according to Trade Alert.

Seen as the chip industry bellwether, Texas Instruments' (N:TXN) report and potential comments from management on Wednesday after the bell will provide evidence of whether a global downturn in semiconductor is bottoming out.

Expectations that the chip industry will soon pick up have fueled a 30% surge in the Philadelphia Semiconductor Index (SOX) since mid-2019.

Analysts on average expect Intel to report a 3% increase in fourth-quarter revenue and to forecast a 7% increase in current-quarter revenue, according to Refinitiv.

With market at record highs, eyes on reports from chipmakers

Related Articles

KPMG fined 3.3 million pounds over Rolls-Royce audit
KPMG fined 3.3 million pounds over Rolls-Royce audit By Reuters - May 24, 2022

By Huw Jones LONDON (Reuters) - Britain's accounting watchdog said on Tuesday it has fined KPMG 3.3 million pounds ($4.16 million) over the company's audit of aero engine maker...

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.

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

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
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?
Replace the attached chart with a new chart ?
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'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
Sign up with Email