news/AMZN/2023.01.22/Wall St Week Ahead-Tech stock rebound faces doubters with earnings season ahead.txt

NEW YORK, Jan 20 (Reuters) - A spate of earnings reports
in coming weeks is set to test a recent bounce in technology and
other megacap stocks, a category whose leadership position in
U.S. markets has faltered after last year’s deep selloff.The tech-heavy Nasdaq 100 index has gained nearly
6.2% in 2023, compared to a 3.45% rise for the S&P 500.
Shares of some megacap companies - which include those grouped
outside of tech in sectors like communication services and
consumer discretionary - have shot higher, with Amazon,
Meta Platforms and Nvidia posting double-digit
percentage increases.Several factors are driving that outperformance, including
investors piling into stocks they believe were overly punished
in 2022. A moderation in bond yields, whose jump last year
particularly pressured tech-stock valuations, is also likely
helping the group, investors said.Now, however, the focus is shifting to whether these
companies can withstand a widely expected economic downturn
while supporting valuations that some investors believe are too
high."To keep this rebound going, the guidance for ’23 has to be
less worse than what people are anticipating," said Peter Tuz,
president of Chase Investment Counsel, whose firm recently pared
its holdings in Apple and Microsoft.Tech and growth stocks led U.S. equity markets for years
following the 2008 financial crisis, aided by near-zero interest
rates. They struggled along with broader markets last year as
the Federal Reserve raised rates to fight surging inflation, and
some investors doubt they will regain the market's pole position
any time soon. The Nasdaq 100 fell 33% in 2022, while the S&P
500 lost 19.4%.
The top six stocks by market value in late 2021 - Apple,
Microsoft, Alphabet, Amazon, Meta and Tesla -
have seen their collective weight in the S&P 500 fall from 25%
to 18%, according to Strategas Research Partners.That dynamic echoes a pattern seen after the market’s
dot-com bubble burst after the turn of the century. The six
biggest stocks at that time saw their collective weight in the
S&P 500 decline to 5% from a peak of 17% over a number of years,
according to Strategas."This leadership unwind ... is going to be one that is
measured in years, not in months or quarters," said Chris
Verrone, head of technical and macro research at Strategas.EARNINGS TESTCompanies comprising over half the S&P 500's market value
are due to report results in the next two weeks, including
Microsoft, the second-largest U.S. company by market value, on
Tuesday, Elon Musk's Tesla and IBM on Wednesday and
Intel on Thursday. Apple, the largest U.S. company by
market value, and Google-parent Alphabet report the following
week.Fourth-quarter earnings in the tech sector are expected to
have declined 9.1% from a year ago, compared to a 2.8% decline
for S&P 500 earnings overall, according to Refinitiv IBES.A critical question for many megacaps, once heralded for
their stellar growth, is whether they can increase revenue and
profits significantly while cutting costs in the face of a
possible recession.Alphabet Inc said Friday it is cutting about
12,000 jobs, or 6% of its workforce, the latest tech giant to
announce layoffs. Microsoft on Wednesday said it would eliminate
10,000 jobs while Amazon started notifying employees of its own
18,000-person job cuts."The biggest positive could be if they could show a control
of expenses while keeping at least reasonable growth intact,"
said Rick Meckler, partner at Cherry Lane Investments in New
Vernon, New Jersey. "It’s a hard balancing act."Valuations for tech and megacap companies have moderated
after last year's selloff, though they still stand above those
of the broader market. The S&P 500 tech sector still trades at a
roughly 19% premium to the broader index, above its 7% average
of the past 10 years, according to Refinitiv Datastream.Nonetheless, some investors are reluctant to bet against
tech stocks.The Wells Fargo Investment Institute counts tech as one of
its favored U.S. sectors.The firm expects an economic downturn and believes many tech
companies have businesses that are resilient to economic
uncertainty, said Sameer Samana, a senior global market
strategist there."It’s just too important and too big a weighting not to
participate," Samana said. "But the years of handily
outperforming the S&P are probably now behind us.”(Reporting by Lewis Krauskopf; Editing by Ira Iosebashvili,
John Stonestreet and Daniel Wallis)