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Trick or Treat Ahead for Tech ETFs After Earnings Subdue Mood?

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The tech-heavy Nasdaq 100 futures traded lower on Oct 29 after shares of the Big Tech companies reported earnings in the after-hour session of the day. Although most of the reported third-quarter results beat expectations, shares took a beating due to underperformance in factors like non-financial metrics or guidance. Technology Select Sector SPDR Fund (XLK - Free Report) lost about 1.2% after hours on Oct 29. Let’s discuss the earnings briefly.

Tech Earnings in Focus

Facebook (FB - Free Report) shares dropped 2.65% after hours following a quarterly decline in users in the United States and Canada, despite recording a 12% jump in daily active users globally during the period. Otherwise, revenues of $21.47 billion and earnings per share of $2.71 beat Zacks Consensus Estimate of $19.89 billion and $1.94.

Twitter (TWTR - Free Report) plunged 17.56% in late trading as the company reported weaker-than-expected daily active user growth following a surge in the preceding quarter. Sales of $936 million and earnings of per share of 19 cents surpassed Zacks Consensus Estimate of $786 million and 6 cents.

Alphabet’s (GOOGL - Free Report) earnings per share of $16.40 beat Zacks Consensus Estimate of $11.40 per share. Reported revenues of $38.0 billion surpassed Zacks Consensus Estimate of $35.36 billion. The company’s advertising revenues rebounded in the third quarter, and shares gained more than 6% in late trading.

Amazon (AMZN - Free Report) recorded a solid beat on third-quarter earnings and revenues. Amazon said sales in the fourth quarter will be between $112 billion and $121 billion, marking year-over-year growth of 28% to 38%. Analysts were expecting revenues of $112.3 billion.

However, Amazon’s guidance for the fourth-quarter operating income has been provided in a wide range of $1 billion to $4.5 billion. That incorporates roughly $4 billion of costs tied to COVID-19 for things like testing, cleaning, extending employee breaks and social distancing measures. Shares of Amazon dropped 1.9% after hours.

Apple's (AAPL - Free Report) reported revenues of $64.70 billion and 73 cents beat Zacks Consensus Estimates of $63.39 billion and 69 cents. The company reported record fiscal fourth-quarter Mac and services sales, but weak iPhone and China sales weighed on the stock in late trading.  Apple shares dropped 4.2% after hours.

Tech Sector a Winner This Year, Will Sizzle Ahead Too

Technology has been a winning sector amid the coronavirus outbreak as social distancing norms enacted globally to mitigate the spread of the virus compelled people to stay at home, binge online and work as well as learn from home. 

Though many corners of the global economy have reopened, COVID-19 cases are rising ahead of winter.Infections are spreading across the United States at the fastest clip since the start of the pandemic, according to the latest NBC News figures. The 71,000 new cases per day that the United States averaged over the past week was the maximum in any seven-day period this year (read: Are Inverse ETFs Better Bets Till Election Day?).

German Chancellor Angela Merkel announced new lockdown measures on Wednesday. French President Emmanuel Macron announced the second national lockdown for at least the whole of November. The moves would follow similar restrictions executed over the past few weeks in Italy and Spain.

Along with CNBC’s Jim Cramer, we too believe that “whenever Covid cases spike, you had to buy the FAANG names [plus Microsoft] because they’ve all found ways to benefit from the pandemic.” Hence, the trend for work-and-learn-from-home should stay strong.

Tech companies are cash-rich. And cash seems to be the most-important asset to individuals and corporations right now.  Hoarding cash could be a great strategy for the near term as inflation risks will not be a near-term possibility if COVID-19 cases keep rising. Moreover, the holiday season should boost companies like Amazon, Apple and Alphabet on an indulgence in tech gifts.

ETFs in Focus

Against this backdrop, below we highlight a few technology ETFs that revolver around big tech stocks.

Apple-Heavy ETFs – Technology Select Sector SPDR ETF (XLK - Free Report) ; Vanguard Information Technology ETF (VGT - Free Report)

Alphabet-Heavy ETFs – Communication Services Select Sector SPDR Fund (XLC - Free Report) ; Vanguard Communication Services ETF (VOX - Free Report)

Facebook-Heavy ETFs – XLC, VOX

Amazon-Heavy ETFs – Fidelity MSCI Consumer Discretionary Index ETF (FDIS - Free Report) , Consumer Discretionary Select Sector SPDR Fund (XLY - Free Report) .

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