WEEK AHEAD
SAN FRANCISCO: A quartet of technology heavyweights will be part of an avalanche of quarterly corporate earnings reports next week that, along with a meeting of Federal Reserve policymakers, could hold the key to whether Wall Street extends its recordbreaking rally or loses steam.
With second-quarter reporting season kicking into high gear, scorecards from Apple, Alphabet, Amazon.com and Facebook will be front and centre for investors eyeing the S&P 500’s alreadystretched valuation following a nearly 9 per cent rally since June 27.
“These are very widely owned companies by institutional investors and there could be selling if the news is bad,” said Tim Ghriskey, Chief Investment Officer of Solaris Group in Bedford Hills, New York.
A total of 194 S&P 500 companies are expected report their quarterly earnings next week; that is much higher than normal for any one week, even during most reporting seasons.
Of reports in so far, 54 per cent have shown revenue above expectations, slightly better than the 48 per cent beat rate over the past year.
Expectations for earnings also appear to be on the mend after over a year of declines caused by slumping oil prices and a strong dollar. Second-quarter profits are now forecast to dip 3.0 per cent, less than the 4.5 per cent drop expected at the start of July, according to Thomson Reuters.
With the S&P 500 trading at about 17 times expected earnings, valuations appear stretched, with some investors saying current stock prices presume better-than-expected results and forecasts from major companies.
Apple, Alphabet, Amazon Facebook account for around 7 and per cent of the S&P 500 and a fifth of the Nasdaq Composite, which has lagged the broader stock market so far this year.
The S&P 500 is up 6 per cent in 2016 while the Nasdaq has gained just 2 per cent.
Many on Wall Street expect those leading technology firms to at least meet or slightly exceed analysts’ forecasts, strategists said. A series of big surprises in either direction could lead to steep stock swings.
Indeed, shares of Amazon have whipsawed following its most recent reports, slumping 6 per cent in one day after its December quarter profits missed expectations and surging 10 per cent the day after its March-quarter results blew away forecasts.
Wall Street widely expects sales of Apple’s iPhones to fall this year for the first time ever as it competes with cheaper rivals in China. But investors are banking on the release of a new smartphone later this year to return Apple to revenue growth in 2017.
“I’m looking at the numbers coming in this week, and Facebook, Google and Amazon should all be strong. Apple is the only one I’m concerned out because of the some of the issues they’ve had with lost market share,” said Daniel Morgan, Senior Portfolio Manager at Synovus Trust Company in Atlanta. His firm owns shares of Apple, Amazon and Alphabet.
On Tuesday and Wednesday the Federal Reserve holds its next policy meeting, with futures prices implying most investors expect no interest rate hike until March 2017. Following the