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* Tech’s growing sway on Wall Street: tmsnrt.rs/2oYIpgQ
By Noel Randewich
SAN FRANCISCO, April 13 The longevity of the
technology stocks rally is on the line next week as Netflix Inc
kicks off the earnings season for a sector that has
mushroomed to account for more than a fifth of the U.S. stock
Surges in Apple, Facebook and other Silicon
Valley heavyweights have pushed the S&P 500 technology index 10
percent higher this year, more than double the broader S&P 500
index's 4 percent gain. The tech sector's aggregate value now
tops $4.4 trillion, 30 percent higher than No. 2 financials, and
even rivals the size of the Federal Reserve's massive balance
The next test for these companies is whether their profit
growth is sufficient to justify their outsized share price
Enter Netflix, which reports after the bell on Monday. The
video streaming pioneer is expected by analysts to quintuple its
earnings per share. But with its stock surging 43 percent in the
past six months and now trading at 109 times expected earnings,
Netflix's valuation is based more on sentiment than on
fundamentals, many investors believe.
"The market's reaction to whatever the news is from Netflix
will be telling," said Stephen Massocca, Senior Vice President
at Wedbush Securities in San Francisco. "If the slightest little
negative leads to a 15-point decline, that tells you things are
elevated and the market is only going to reward the most
excellent of news."
Momentum in many tech stocks has been driven by ambitious
expectations for earnings. Tech profits are seen climbing 14.7
percent for the first quarter, according to Thomson Reuters
I/B/E/S. That would account for nearly a third of the 10.4
percent earnings growth predicted across the S&P 500.
"It's great for everybody to feel good, but if nobody is
buying stuff and the companies are reporting disappointing sales
and that affects their margins, then you'll be starting to say -
wait a second," said Thomas Martin, a portfolio manager at
Along with the S&P 500, tech shares have flatlined for weeks
as Wall Street reassesses whether President Donald Trump will be
able to push corporate tax cuts through Congress.
Still, so far in April investors have poured $122 million
into the U.S.-listed Technology Select Sector SPDR Fund,
bringing total flows into the fund this year to $1.4 billion,
according to ETF.com, which tracks fund flows.
Inside the tech rally, chip makers have been notable
outperformers, with the Philadelphia Semiconductor index up 40
percent in the past year. Semiconductor companies are expected
to boost EPS by 46 percent in the first quarter, helped by the
growing use of chips in cars and mobile gadgets. One of the
biggest - Qualcomm Inc - reports on Wednesday.
While shares of the mobile chipmaker have been bogged down
by a legal battle with Apple, its sales are seen rising by 6
percent and EPS by 14 percent.
(Reporting by Noel Randewich; Editing by James Dalgleish)