We just made it through the first week of Big Tech earnings but not without a few bumps and bruises. Tech investors are beginning to get wary about a potential peak being hit after 4 months of relentless returns.
Despite a big top and bottom-line beat, Microsoft’s (MSFT - Free Report) sell-off from marginally soft forward guidance has investors of all sizes pulling profits. This sell-off rippled across all tech with Amazon (AMZN - Free Report) and Apple (AAPL - Free Report) both losing around 8% of their value since Monday morning.
Now investors are looking towards next week, which is expected to be the height of excitement amid this summer earnings season. I look forward to earnings reports from Visa (V - Free Report) , Starbucks (SBUX - Free Report) , Facebook (FB - Free Report) , Paypal (PYPL - Free Report) , Shopify (SHOP - Free Report) , Amazon (AMZN - Free Report) , Apple (AAPL - Free Report) , Google (GOOGL - Free Report) , and a cornucopia of other critical names. Below is a chart of when and what to expect from the hottest companies next week.
Should Investors Be Worried?
The over 5% pullback in the Nasdaq 100 this week removes some of the downside potential from the table, but I still think there is more room to fall. Pandemic-driven bankruptcies are just beginning to swell across the economy with the lion’s share of the pain being borne by small to medium-sized businesses (SMBs). Another uptick in cases and deaths around the US points to this struggle being far from over.
Investors have discounted the impact that SMBs have on tech's returns. SMB is a very unpenetrated segment as far as techs addressable market is concerned and represents substantial growth potential for these firms. If this space disappears, it could mean much slower growth rates for these innovation-driven companies than what investors have already priced in.
I have been trading QQQ puts throughout the first couple weeks of this earnings season and will continue to do so to hedge my tech-heavy portfolio.
If you take one thing away from this article: BE CAREFUL with your investment decisions these next couple of weeks. Don't try to game earnings unless you are merely doing so to get your gambling fix. We do not know what lies ahead for equities.
We are trading in uncharted waters. There appears to be a rotation out of tech and into more cyclical names the past few weeks, and this trend may continue through the next weeks of earnings.
This should be a time for assessing risk/reward ratios for all the stocks in your portfolio. This next week will be very telling on which direction the markets are headed next.
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