Fed, Netflix Earnings Dampen 2023’s Tech-Stock Surge
There is increasing worry among Wall Street that the two main factors driving the rise in tech stocks this year may be in danger of losing momentum.
Last Thursday, Tesla and Netflix’s results fell short of expectations, casting a shadow over the sector. Meanwhile, concerns persist that the Federal Reserve might not end its monetary tightening.
This week, around 170 S&P 500 companies, representing 40% of its market capitalization will post earnings reports, including $Microsoft(MSFT.US$, $Meta Platforms(META.US$, and $Alphabet-C(GOOG.US$. On Wednesday, Fed Chair Powell might hint if investors were right to expect another rate hike.
“The number one concern for investors in the second half of the year is all about the Fed,” said Eric Diton, president and managing director of Wealth Alliance. “If there are more hikes than Wall Street expects, it will be bad for tech and growth stocks. Valuations need to come down.”
AI has driven valuations this year very highly, with the Nasdaq 100 soaring 42% this year and trading at 29 times forward earnings.
$Apple(AAPL.US$, Microsoft, $Amazon(AMZN.US$, $NVIDIA(NVDA.US$ and Alphabet are trading at a combined 30 times forward earnings, the highest since March 2022, according to data complied by Bloomberg Intelligence. This also takes into account expectations that big-tech earnings will continue to improve.
The potential for earnings pressures could actually resolve itself, with the rest of the index playing catchup with improving profits. That would ultimately help support equity prices more broadly, said Gina Martin Adams, chief equity strategist at BI.
Source: Bloomberg
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