Alphabet and Microsoft are expected to report their results on April 25, followed by Apple on May 4. Amazon, part of the consumer discretionary sector, is expected to announce results on April 27. Tesla shares fell nearly 10% after missing earnings estimates on April 19. Companies will likely use earnings reports over the next several weeks to announce further plans for layoffs, which could bolster margins ahead of a recession and make their shares more attractive, said Robert Stimpson, co-chief investment officer and portfolio manager for Oak Associates Funds.
Alphabet in January announced 12,000 job cuts, followed by
Amazon
in March with 9,000 cuts, and others that bring the total
to 27,000 layoffs over recent months.
"Tech corrected very hard last year and it's already discounted for some sort of recession, given that it has accepted that it has to cut headcount and retrench a little bit," said Stimpson. "It's an industry that is accepting its medicine." Stimpson is overweight technology and cutting back on his energy exposure in anticipation of a recession.
However, signs of improving profitability could power "another leg up" in the rally, said Tom Plumb, portfolio manager of the Plumb Funds, who has large positions in Nvidia Corp and Apple. Nvidia shares are up more than 90% this year. "We paid the penalty for holding on to a number of these stocks last year," Plumb said. "In today's market growth is something that people think will be a challenge and if you can identify growth you'll be rewarded." Still, gains could fizzle if the Fed does not cut interest rates this year, as widely expected. While the central bank has projected borrowing costs will stay around current levels until year end, investors are pricing rate cuts after the summer.
Elevated rates would likely weigh heavily on technology
valuations, which have soared since the year began, said Max
Wasserman, senior portfolio manager at Miramar Capital. Growth
stocks are especially vulnerable to high borrowing costs, which
threaten to erode the value of their longer-term cash flows.
Apple is trading at a forward price-to-earnings ratio of
26.5, while Microsoft's ratio is 27.4, compared to 18 for the
S&P 500.
"You're seeing extremely high multiples in a rising interest
rates environment because the market is betting the Fed will
reverse its policies," he said. "We think it's a faulty
assumption and the risk-reward is not in your favor."
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US tech stocks regain some lost ground ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
(Reporting by David Randall; Editing by Ira Iosebashvili and
Richard Chang)
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