Tech Sector Nerves on Edge as Big Names Prepare to Report Earnings

Strategic Insights -

The technology sector is bracing for the release of second-quarter earnings from some of its biggest players, including Microsoft, Google, Yahoo, Intel, Ebay, Apple Computer, and IBM. A recent sell-off has the Nasdaq Composite experiencing its worst five-day performance in over a year, and some strategists are re-examining their bullish assumptions. Despite healthy corporate profits on the horizon, recent profit warnings from prominent technology companies and broader market jitters have contributed to sharp losses, pushing technology stocks into the red for the year.

Key Takeaways:

  • A sharp sell-off last week led the Nasdaq Composite to its worst five-day performance in more than a year, raising concerns about the tech sector's future earnings prospects.
  • James Paulsen, chief investment strategist at Wells Capital Management, believes the recent decline in tech stocks could represent a buying opportunity, with price-to-earnings ratios falling to more favorable levels.
  • Jack Caffrey, equity strategist at JPMorgan Private Bank, notes that although earnings in the second quarter are likely to remain strong, there has been a "substantial shift in sentiment" in recent days, driven by profit warnings from smaller companies and consistent negative revisions within the tech sector.
  • The anticipated boom in IT spending this year, fueled by companies upgrading their IT infrastructures, has not materialized, with many companies tending to be conservative with their cash flow.
  • Companies like Advanced Micro Devices, Intel, and EMC have warned of lower-than-expected sales and earnings, contributing to the sector's downward trend.

Statistics:

  • The Nasdaq Composite experienced its worst five-day performance in over a year, with a decline of [percentage not specified in the article].
  • The price-to-earnings ratio for tech stocks has fallen to more favorable levels, according to James Paulsen.
  • 11% decline for EMC shares last week.
  • 8% decline for Apple Computer shares last week.
  • 4% decline for Google shares last week.
  • 5% decline for EMC shares on Friday after cutting its full-year outlook.

Sources:

  • "It's tough being a bull lately," said James Paulsen, chief investment strategist at Wells Capital Management.
  • "Fundamentally, I don't see much that's wrong," said James Paulsen, referring to prospects for healthy corporate profits.
  • "For all the strength in the economy, companies are tending to be fairly conservative with their cash flow," said Jack Caffrey, equity strategist at JPMorgan Private Bank.
  • Advanced Micro Devices warned sales in the second quarter would be lower than expected.
  • Intel is set to report earnings on Wednesday, bracing for a bumpy ride.
  • EMC fell 11 per cent last week after it warned earnings would fall below forecasts.
  • Shares in Apple Computer fell 8 per cent last week amid concerns that sales of the iPod music player may not be enough to sustain current levels of sales and profits growth.
  • Google fell 4 per cent last week ahead of second-quarter results.