The warning bell is sounding louder for tech stocks on Wall Street, and for the health of the wider market.
A third of the S&P 500 shares are due to report in the heaviest week of the June 30 reporting season. The tech-heavy Nasdaq has lost 2.4% in the past fortnight, while the rest of the market has been up.
In fact, the Nasdaq had back to back weekly falls for the first time in two months.
That’s because valuations are getting stretched against the background of climbing COVID-19 infection rates in the US in particular with 40 of the 50 states now reporting increases in both infections and deaths.
As a result of Nasdaq’s weakness, all eyes will be on quarterly reports and guidance (if any) from Apple, Amazon, Facebook, and Alphabet. The quartet are due to report this week and will determine if the current surge in megatech shares and the wider market will continue or be broken by next Friday’s close of trading.
Facebook reports on Wednesday, but Thursday is the big test day with Apple, Amazon, and Alphabet (Google) all down to report during the day – Apple will be after hours as usual.
The markets have faced this situation before in the past three years as the market values of the so-called FAANG stocks have come to dominate and support wider valuations.
But never have the three most important all reported within hours of each other on the same day. It will make for a very volatile day and is investors are being battered by continuing problems with COVID-19 infections rising, seemingly out of control, then a sell-off could be in store.
Thursday also sees the release of the weekly first time jobless claims figures. After the surprise 109,000 rise in the latest week, a second weekly rise will raise more questions about the health of the economy.
And next week will hopefully see a deal in the US Congress that will see the US federal jobless support spending packages extended for another couple of months. If there is no agreement by Thursday, it could be a day to spend on the sidelines.
At the weekend though the chances a renewal of the extra $US600 a week supplement from the federal government looks uncertain with Republicans floundering and under pressure from president trump.
The Nasdaq Composite index (where there is a lot of tech stocks) slumped 2.3% on Thursday, while the Dow lost 1.3%, and the S&P 500 fell 1.2%.
That’s despite a solid result from Microsoft in the June quarter and the year to June.
Microsoft revealed fourth-quarter earnings of $US11.2 billion, on revenue of $US38 billion on Wednesday, compared with sales of $US33.71 billion a year ago.
That performance ended a year of record profit and sales, despite the onset of the COVID-19 in the final six months. For the year, Microsoft reported earnings of $US44.28 billion on sales of $US143 billion, up 13% and 14% respectively from 2018-19’s record performance.
Microsoft shares are up 34% so far this year on expectations of results like this or better, and yet the shares sold off on Thursday, falling 4.3%.
Apple shares fell 4.6% on Thursday ahead of its quarterly results next week. Analysts are confused about Apple and feel the big gains this year will not be supported by the results (or so Goldman Sachs argued on Thursday in a note).
Tesla reported a surprisingly sold quarterly result with positive earnings for the 4th straight quarter but the shares fell 5%
Amazon was the same – shares fell 3.7% ahead of what is expected to be a solid result next week, but one with added costs.
On Friday we saw more losses with the Dow down 0.68%, the S&P 500 off 0.6% and Nasdaq down 0.94%. Intel shares lost more than 16% as it admitted it was behind in the introduction of a new generation of computer chips.
For the week, the Dow ended 0.8% lower, the S&P 500 lost 0.3%, and the Nasdaq lost 1.3%. The Nasdaq-100 slid 1.5% for the week. A week ago the Nasdaq was down 1.1% for the week.
