Tech stocks have been under pressure lately as Fed policy changes have shifted sentiment. High-growth stocks in the Technology sector will be less attractive under this new monetary policy regime, which sees shrinking liquidity and rising rates. This is the consensus in the market about how these sectors should behave.
– ZacksThe chart below shows the stock markets performance of Zacks Technology over the past year. The chart also includes the S&P 500 Index, the Zacks Finance Sector, and Microsoft MSFTApple AAPL shares.
Image Source: Zacks Investment Research
This chart shows a few things that really stand out. First, the Technology sector is at bottom of the heap. This could be due to the sentiment issue with these stocks during tightening Fed cycles. Second, Apple’s and Microsoft’s notable rebounds have been attributed to their record-breaking quarterly results.
Apple earned $94.7 billion for the entire year 2021. Please note that earnings are not revenues. Apple earned $123.9 billion in Q4 compared to $365.8 billion the whole year.
We will be watching how Facebook’s Q4 results are received by Facebook FB, Alphabet GOOGLAmazon AMZNApple and Microsoft set a high standard for what they can achieve. We know that these Big 5 Tech players Apple (Amazon, Alphabet), Facebook and Microsoft are highly profitable.
The chart below shows the current consensus expectations for this group in the context of their achievements in 2021 Q4 as well as the preceding period.
Image Source: Zacks Investment Research
This shows that earnings growth is declining in a significant way even if some upward revisions are made in the coming days.
However, revenues are strong and it is cost pressures that are limiting earnings expectations. This is the key takeaway from today’s earnings picture. Companies appear to be struggling in a historically high-demand environment.
Logistical bottlenecks are the source of struggle. They stopped Apple selling more iPads and Levis selling more jeans due to input shortages, logistical bottlesnecks and rising prices. All of this leads to reduced margins.
While Microsoft, Alphabet, Facebook and Amazon are not as susceptible as Apple and Amazon to logistical bottlenecks, they all have the financial resources to hire those smart engineers.
Below is a chart that shows revenue growth and earnings for the group on an annual basis.
Image Source: Zacks Investment Research
The chart shows the growth trend for 2022-2023. The growth trend of these companies will fluctuate depending on the time frame you have. These companies are great growth engines over the long term.
The total Q5 earnings of the Technology sector will be +14.2% higher than the same period last, despite the absence of the 5 major tech players.
The chart below is dramatic and shows the expected Q4 earnings for each sector. It also includes revenue growth projections. This chart gives an overview of the growth in the last four quarters, and what is to come in the future.
Please note that Q4 earnings and revenues growth rates are the mixed growth rates. It combines actual results and estimates for the yet-to-come companies. If we exclude the 2021 Q2 period, the chart would be less dramatic in its slowing growth trend.
Image Source: Zacks Investment Research
The big picture view of the Big 5 and the sector in general shows a slowing growth trend. The annual picture, however, shows more stability than the quarterly view. As the chart below illustrates,
Image Source: Zacks Investment Research
Meta Platforms (aka Facebook), Alphabet, (aka Google), and Amazon will be reporting results this week in the reporting docket. Spotify (SPOT), Exxon, XOM and other notable companies will also report results this week.
This week will bring results from more 350 companies, including 109 S&P500 members. We will see Q4 results from 277 S&P500 members, or 55.4% of all index members, by the end of this week.
Q4 Earnings Season Scorecard
All the results as of Friday, January 28ThWe now have the Q4 results for 168 S&P 500 members, or 33.6% of all indexes total members. These 168 companies have a total earnings (or aggregate net profit) of +30.6% compared to the same period last years. They also have +16% lower revenues. 79.8% beat EPS estimates, and 78% beat revenue estimates.
The comparison charts below place the Q4 results of these 168 index member in historical context. This should help us to get a sense of how the Q4 earnings seasons is tracking relative other periods.
The first set of charts compares the earnings and revenue growth rates of these 168 index members.
Image Source: Zacks Investment Research
The second set of charts shows how these 168 index members compare to EPS and revenue estimates.
Image Source: Zacks Investment Research
The comparison charts above show that the Q3 numbers represent a slowdown in growth from the first half’s blistering pace. They also reflect a decrease in beats percentages, especially EPS beats percentages.
For the Technology sectorNow, we have Q4 results from 54% sector market capitalizations in S&P 500. These Tech companies have a total of +18.4% higher earnings in Q4 than last year. The 87% of them beat EPS estimates while the same proportion beat revenue estimates.
The following charts provide historical context for the Q4 EPS and revenue beats percentages of the sectors.
Image Source: Zacks Investment Research
Expectations for Q4 and Beyond
The total Q4 earnings for S&P 500 index are expected increase by +24.2% over the previous year. This is due to the combination of actual results and estimates for the still-to be announced companies.
The chart below shows the earnings and revenue growth picture over a quarterly basis. Expectations for 2021Q4 are contrasted against the actual growth in the four preceding quarters and estimates of the next three.
Image Source: Zacks Investment Research
S&P 500 total earnings are expected to rise by 4.7% over the current period based on +7.9% increased revenues. Below is the chart that shows the revisions trend for this period.
Image Source: Zacks Investment Research
The chart below shows a comparable picture on an annually basis.
Image Source: Zacks Investment Research
Please see our weekly Earnings Trends report for a more detailed view of the overall earnings picture, as well as future expectations. >>>> Earnings Picture Still Strong Despite Market Downturn
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