Title: Big Tech Companies See Strong Earnings, But Concerns Over Future Growth Linger
In a surprising turn of events, big tech companies such as Apple, Alphabet, Meta Platforms, and Tesla have reported higher-than-expected earnings. However, fears surrounding future growth have cast a shadow over their outlook for the fourth quarter, causing angst among investors.
Last week, the Nasdaq 100 Stock Index experienced a remarkable 6.5% rally, marking its best week in a year. Despite this positive performance, concerns about the failure of future guidance have dampened investor sentiment, particularly as tech stocks, which were previously priced to perfection, have fallen short.
The seven biggest tech stocks have seen an average decline of about 9% from their 52-week highs. Additionally, shares of these companies in the S&P 500 are priced at an average of 31 times projected profits, nearly double the multiple of other benchmark stocks.
However, there is a glimmer of hope for the tech sector. Profits for the seven largest growth companies in the S&P 500 are anticipated to rise by 50%. Keith Lerner, an expert at Truist Advisory Services, believes that the pressure on Big Tech indicates that the correction in the S&P 500 is nearing its end, and he expects stock market outperformance in the last two months of the year.
Despite this potential positive outcome, the tech sector in the S&P 500 still carries a nearly 36% premium compared to the index on a forward price-to-earnings basis. Advisors Asset Management warns of more difficulties ahead for larger growth stocks.
The battle between tech stocks and bond yields may continue in the coming weeks, posing a potential threat to money managers who recently invested in US megacap companies as yields fell. Furthermore, any economic or geopolitical upheaval could have an adverse impact on tech stocks and the broader market. Thus, caution is advised in navigating this unpredictable landscape.
Interestingly, the Federal Reserve’s indication that long-term Treasury yields will decrease has led to the S&P 500’s most exceptional week of 2023, creating both opportunities and challenges for investors.
In light of these factors, Max Wasserman at Miramar Capital advises caution and highlights the importance of avoiding excessive optimism when it comes to megacap tech stocks. As the year draws to a close, the tech industry and its investors remain cautiously optimistic, keeping a watchful eye on the shifting landscape and its implications for future growth.
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