Ready for high earnings?
Ladies and gentlemen, we have just entered Earnings Season. Welcome to a couple of weeks of market frenzy whereby huge corporations will reveal their sales and earnings figures, and investors will stand at the ready to buy and sell stocks accordingly. As a general rule, surprises, whether positive or negative, have the greatest impact on the markets; this quarter at Banc De Binary, our analysts have been busy speculating as to what happy surprises the tech giants may reveal.
Intel, Yahoo, eBay and Google will report data this week, followed next week by Netflix, Apple, Facebook and Amazon. The tech sector boasts the highest projected earnings growth rate of all the ten S&P sectors at 12.3% for the second quarter, which if true, would make for the best quarter since the start of 2012. Aside from the obvious fact that many tech stocks are giant household names, why is taking center season?
In the second quarter, the U.S., the world’s largest economy and home of the key tech superpowers, has finally picked up pace after the awful winter and displayed positive signs of growth. While a smartphone could arguably be deemed a necessary purchase in today’s consumer society, owning the latest iPhone is still a privilege. It follows that as overall employment and consumer spending power rise, so too will tech sales and stocks. The more the economy shows signs of sustainability, the higher stocks will climb.
According to Goldman Sachs analysts, the technology sector currently “appears to be the most undervalued” and this is contributing to the sparks of investor optimism. While the Dow Jones and S&P 500 have broken records recently, the techheavy Nasdaq index remains over 700 points away from its all-time peak, and although earnings-per-share growth in the sector has been an average of 5.4% above the S&P 500 it that they are now stage in earnings over the past ten years, it is now just 1% above the index. Indeed, there seems to be plenty of space for the bulls to manoeuver.
However, keep in mind that the mood may be positive, but it is certainly not one of full confidence. Last week tech stocks declined slightly, with the Nasdaq losing 60.07 points on Tuesday. Many investors remain cautious and are now holding out for the earning reports before pursuing further activity. That’s a wise move. If you’re looking to profit from the season, tune in to the reports live and be prepared to place trades at the earliest possible opportunities for maximum impact.