This is the make-or-break week for tech earnings. Microsoft Corp. (MSFT), Meta Platforms (META), Alphabet (GOOG), Amazon.com Inc. (AMZN), and Intel Corp. (INTC) will all report earnings this week and set the tone for the rest of the quarter. Tech stocks have a big impact on investor sentiment and based on those that have already reported, there is reason to be optimistic. A breakout beyond resistance on the S&P 500 still seems unlikely, but good tech earnings would keep support strong, which is good for traders trying to buy cheap, undervalued stocks right now. In this week’s livestream, we cover all the variables that could affect earnings, plus we look forward to some other economic indicators.
Here’s Why We Care About Tech Stocks
We’re interested in these tech companies because they are overweight to the major indexes, meaning they are overrepresented. They have a disproportionately large share of the market, and they direct investor sentiment and expectations. These companies are sensitive to a rising dollar value – that devalues their foreign earnings — and rising interest rates, which discount future earnings.
In terms of dollar futures, the U.S. dollar’s value is getting closer to parity with the British pound and the euro and is even stronger against the Canadian dollar, yen, and many other currencies. That strength minimizes foreign profits overseas, especially for tech stocks like MSFT.
Another factor to consider is economic fundamentals like unemployment and consumer behavior, which are mostly strong right now. However, in last Thursday’s livestream, Wade advised caution due to a few factors:
- The good bank earnings reports we’ve been seeing have slacked off, leaving us with some lackluster results for many financial institutions.
- We are fighting against a significant inverted Treasury yield curve. Last week, the 10-year treasury yield closed barely above 4%, then drifted below that point. Now it’s back up.
- Expectations are changing once again for how the federal funds rate will fluctuate for the remainder of 2022 and into 2023. Another .75% rate hike in both November and December has already been factored into the market. But at the end of 2023, instead of the rate topping out around 4.75%, expectations are now around 5%. Wall Street no longer believes the Fed will stop hiking rates after December 2022. Not dramatic increases, but pricing in the expectation that they will raise them at some point(s) through 2023.
- These factors increase the chance for a recession. One Bloomberg model released last week predicted a 100 percent chance of a recession by October 2023, up from 65% for the comparable period in the previous update. We’re not so sure that’ll come to pass, but we do know that there will be some promising buying opportunities in the coming year.
Great tech stock earning announcements this week – showing unexpectedly better than expected numbers, good expectations, etc. – could be enough to turn things around. If not, the S&P could drop down to retest the lows we saw a few weeks ago.
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Why would we be cautiously optimistic about tech stock earnings? Might we be able to pick up good deals? In the livestream, John uses MSFT as example – it’s a good bellwether of what to expect in general. Their PC business has slowed down a bit, but the cloud business is booming, and thankfully, it holds a large market share.
Initial reports from smaller companies indicate expectations are so low that they would beat expectations regardless.
This is a good time to invest in the sector if the lows stay low and earnings come in good.
On the Docket This Week
After the market closes on Oct. 27, look for those aforementioned tech stocks to report earnings. New economic data coming out this week include the quarterly advance GDP estimate, durable goods orders (which measures current industrial activity), and unemployment reports. On Oct. 28, look for the core personal consumption expenditures price index, a measure of what people pay for goods and services.
Viewer Questions and Feedback
Here are a few questions we addressed in Monday’s livestream:
Could you please give us more info on how to see the effective interest rates through the earnings of the companies, specifically small companies with high debt? –Hamed R.
Could we argue that Costco is forming a head-and-shoulders pattern? – Ramen S.
We are really interested in any questions and comments our readers have. They help to grow the channel, and we do look at them all. We’d be happy to answer any of your questions. Just drop us a line in the comments section of our livestreams or email us at feedback@investorplace.com.
Sincerely,
John and Wade