Tech stock earnings preview: Will earnings halt the tech selloff?

Investors are selling out of tech amid growing expectations of interest rate hikes in 2022. Will earnings give investors a reason to buy back into tech?

Google

Tech earnings in focus after a tough start to the year

Tech stocks have had a rough start to 2022 putting more pressure on the upcoming earnings as investors search for reasons to buy into tech stocks, even as the Fed looks set to raise interest rates 3 or 4 times across the year. 

Expectations of higher interest rates have seen investors rotate out of high growth tech and into value stocks, which are more likely to outperform in a higher interest rate environment. 

The tech heavy Nasdaq trades down 4.8% since the start of the year. Meanwhile, the technology sector in the S&P is also down around 5% since the start of the year, with some big tech such as Microsoft trading down 7%. The S&P 500 is down a more moderated -2.7%. 

A reason to buy tech? 

Investors will be looking to earnings for guidance over whether big tech is a buy even as the interest rate environment is expected to change unfavorably for the behemoths. For these stocks to rise when higher interest rates are pressuring stretched valuations, demand for the product or service needs to be strong.  

Wall Street needs to see encouraging 2022 guidance, which could include signs that the chip shortage is easing, in order to put the bulls back in control. However, let’s not forget that tough comparisons from 2020 and concerns over a pull forward dynamic in the pandemic could still prove to be headwinds too. 

Tech earnings growth to underperform the broader S&P 

According to FactSet overall S&P earnings are expected to rise by 25% in Q4 compared to the same period in 2020. However, tech stocks are expected to see earnings rise 15.6%, as other sectors are expected to have benefited more from the economy’s rebound – such as banks and industrials.

That said, a strong earning season could at least offset some of the pain from rising treasury yields which steeply discount the value of future profits.  

Areas of tech which could outperform 

The broad expectation is that early play work from home stocks such as Zoom, Citrix and Docusign could see growth moderate significantly. However, cloud and software companies could lead the way as far as earnings are concern. Daniel Ives analyst at Wedbush considers that cloud-based workloads will increase to 55% by the end of 2022, up from 43% currently. This bodes well for the cloud service giants such as Amazon and Microsoft. Meanwhile large caps Apple and Alphabet could find themselves falling into a safe haven large tech play on the back of reasonable numbers. 

  

 

 

 

Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

Open an Account