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What's In Store for FAANG Stocks During Q3 Earnings Season?

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U.S. stocks were mixed on Tuesday as Wall Street waits for the Fed’s latest interest rate outlook, which should become clearer after the ongoing FOMC meeting concludes tomorrow. Investors expect the central bank to lift benchmark borrowing rates back to levels not seen since the Great Recession, but market watchers will also be hoping for more detailed plans for the near future.

The pace of the Fed’s rate hike schedule joins a growing list of economic uncertainties weighing on the minds of global investors—a list which also includes questions about inflation, yield curves, and a handful of troubling trade disputes.

But even in the face of these uncertainties, major stock indexes remain near all-time highs ahead of Q3 earnings season, which promises to deliver results indicating another period of robust profit and revenue growth.

Indeed, tax reform has ensured solid earnings growth, and strong consumer confidence and enterprise spending will likely result in another impressive quarter for the top line.

Some sectors have also been impacted by specific factors affecting their businesses as of late. For example, our Oil and Energy group is projected to see earnings growth in excess of 86% this season—likely a result in a year-over-year surge in prices. Likewise, earnings growth in the Finance sector—which is expected to touch nearly 30% for Q3—should be supported by rising rates.

Nevertheless, we are likely to see a continuation of trends that have been apparent for years, and that means the growth should be comfortable in the Technology sector as well. Here’s a look at the latest estimates for our 16 sector groups:

It is no secret that tech stocks have been the driving force of our historic bull market. Drastic improvements to technology—in terms of both usability and affordability—were timed perfectly with the global economic recovery, and major tech companies skyrocketed as consumers and businesses moved into the next generation of our digital society.

From an investor’s perspective, the most compelling storyline to emerge from this tech super-cycle has been the dominance of the so-called “FAANG” stocks—Facebook (FB - Free Report) , Amazon (AMZN - Free Report) , Apple (AAPL - Free Report) , Netflix (NFLX - Free Report) , and Google (GOOGL - Free Report) .

However, those paying attention to this space are aware that our aforementioned list of uncertainties could also include newly-emerging questions about these tech behemoths.

Can Facebook and Google push through public concerns about their data- and ad-driven business models? Can Netflix and Amazon truly justify their speculative valuations? Will Apple’s pivot to an ecosystem focus resonate with users?

These questions are specific to the above companies, and we see mixed answers manifest in different ways. Earnings estimates for Facebook have slumped in the approach to Q3 earnings season, for example. Meanwhile, analysts have revised estimates for Apple and Alphabet higher.

Overall, our Computer and Technology sector is expected to see earnings growth of 14.8% on 11.3% higher revenue in Q3. What’s even more impressive is when you just look at the FAANG stocks; the group of five tech behemoths is expected to see earnings growth of 139.2% and revenue growth of 27.3%, on average.

That figure includes some outliers, of course. Amazon’s bottom line is projected to swell a staggering 525%, and we also know that analyst estimates for the company have a tendency to be well off. Facebook’s projected year-over-year earnings decline also sticks out from the pack.

But the projected revenue growth rates are grouped together nicely and paint an amazing picture of health in the FAANG businesses. These companies each tell their own unique growth story, but they are seeing comparable results on the top line right now.

Regardless, performance in the previous quarter is likely to be the least influential indicator for these companies this earnings season. As mentioned, Wall Street will be looking for these brands to begin answering the questions which have been posed to them. What’s more, investors will need strong guidance if these market leaders want to lift indexes even higher.

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