Edgy market to focus on tech trio

SAN FRANCISCO: The pressure is on for Amazon, Alphabet and Microsoft as they prepare to report quarterly results at a time when confidence in those market leaders looks increasingly fragile and in danger of derailing Wall Street’s rally.

After worries about higher interest rates sparked a steep selloff early this month and again on Thursday, the S&P 500 remains down five per cent from its September 20 record high close, with top-shelf stocks including Amazon.com Inc, Alphabet Inc, Netflix Inc and Facebook Inc showing little of their vitality from recent years.

A quarterly report from Microsoft Corp on Wednesday after the bell, followed by Alphabet and Amazon late on Thursday, will influence sentiment across Wall Street.

“The equity market is at a critical point here,” said Kurt Brunner, portfolio manager, Swarthmore Group in Philadelphia, Pennsylvania. “In order for it not to get a lot worse, I think you need to see Amazon and Alphabet put up some good numbers.”

With investors worried about increased Internet regulation and criticism of Facebook’s handling of user data, the social media company’s stock has slumped 29 per cent from its record high on July 25. Alphabet is 15 per cent below its July 26 record high close, while Amazon has fallen 12 per cent this month.

Microsoft has also stalled after doubling over the past two years.

Still, Netflix and Amazon remain up 81 and 51 per cent year to date, respectively, underscoring their places among Wall Street’s crème de la crème. The S&P 500’s largest component, Apple Inc has gained 28 per cent this year, even after falling seven per cent from its record high on October 3.

A five per cent surge in Netflix on Wednesday after its upbeat quarterly report allayed fears the video streaming company was losing steam.

But that did little to perk up its fellow stocks in the so-called “FANG” group that also includes Amazon, Google-parent Alphabet and Facebook. In the past, they have often risen together.

Powerful rallies by Facebook, Amazon, Alphabet, Apple, Microsoft and Netflix in recent years have made them must-own stocks for portfolio managers, making their ownership so widespread that they are at risk of a major sell-off should a majority of investors’ views about them change for the worse.

The recent slide has left Amazon and Facebook trading at discounted multiples of their expected earnings. Amazon’s forward price-to-earnings ratio last week touched 74, a seven-year low, according to Refinitiv data. Facebook this month traded as little as 18 times expected earnings, the lowest since its 2012 public listing.

Helped by a strong economy and deep corporate tax cuts, S&P 500 earnings per share are expected to grow 22 per cent in the third quarter, according to I/B/E/S data from Refinitiv.

Propelled by its cloud computing business, Amazon is expected by analysts to report a September-quarter non-GAAP (generally accepted accounting principle) net profit of US$1.54 billion (RM6.4 billion), or US$3.12 per share, compared to just US$256 million a year ago, according to Refinitiv.

Alphabet’s September-quarter non-GAAP net profit is seen rising nine per cent to US$7.36 billion, or US$10.43 per share. Microsoft’s non-GAAP net income is seen rising 13 per cent to US$7.46 billion, or US$0.96 per share.

Facebook reports its quarterly results on October 30, followed on November 1 by Apple.