Subtle Warning Signs From Tech – After Massive Gains Since March Low, Profit Protection Likely To Drive Decisions

Last week, the Russell 2000 jumped 3.6 percent, while the Nasdaq 100 slid 1.8 percent. If investors are indeed moving away from tech toward small-caps, this is no good news for markets as a whole. The five largest US companies are all tech, and they enjoy inordinate influence on market cap-weighted indices, such as the Nasdaq 100 and the S&P 500.

As of last Thursday, 2020 operating earnings estimates for S&P 500 companies stood at $109.16, up $0.30 from eight days ago. Several leading banks and brokers reported last week. Blended 2Q estimates were up $0.32 to $22.69 during the period.

This week, we will begin to hear from tech heavy hitters – Texas Instruments (TXN) on Tuesday and Intel (INTC) on Thursday.Microsoft (MSFT) – one of the top five US companies – reports Wednesday. The remaining four report next week – Facebook (FB) on the 29th and Apple (AAPL), Amazon (AMZN) and Alphabet (GOOG) on the 30th.

MSFT is expected to earn $1.38 in the June quarter; 90 days ago, it was expected to ring up $1.40. The bar is similarly low for the other four – FB, $1.37 versus $1.67 90 days ago; AAPL, $2 versus $2.14; AMZN, $1.34 versus $6.12; and GOOG, $8.23 versus $10.82.

A lower hurdle is not just a tech phenomenon. Three months ago, the sell-side expected S&P 500 companies to earn $136.55 this year; now, as mentioned earlier, this has been revised lower to $109.16 (Chart 1). In fact, in March last year, 2020 estimates were as high as $186.36.Reality has sunk in. Even now, of the $109.16, the second half is expected to bring in more than 61 percent – or $66.96 – hence is vulnerable to disappointment.

Ahead of the tech heavyweights getting ready to report, the Nasdaq 100 (10645.22) gave back 1.8 percent last week. Monday, it posted a new intraday high of 11069.26, but not before ending with a bearish engulfing/outside day. Through that record high, the index shot up 63.5 percent from the March 23rd bottom of 6771.91.

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