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 With second-quarter reporting season kicking into high gear,
scorecards from Apple <AAPL.O>, Alphabet <GOOGL.O>, Amazon.com
<AMZN.O> and Facebook <FB.O> will be front and center for investors
eyeing the S&P 500's already-stretched valuation following a nearly
9-percent rally since June 27.
"These are very widely owned companies by institutional investors
and there could be selling if the news is bad," said Tim Ghriskey,
chief investment officer of Solaris Group in Bedford Hills, New
York.
A total of 194 S&P 500 companies are expected report their quarterly
earnings next week; that is much higher than normal for any one
week, even during most reporting seasons.
Of reports in so far, 54 percent have shown revenue above
expectations, slightly better than the 48-percent beat rate over the
past year.
Expectations for earnings also appear to be on the mend after over a
year of declines caused by slumping oil prices and a strong dollar.
Second-quarter profits are now forecast to dip 3.0 percent, less
than the 4.5 percent drop expected at the start of July, according
to Thomson Reuters I/B/E/S.
With the S&P 500 trading at about 17 times expected earnings,
valuations appear stretched, with some investors saying current
stock prices presume better-than-expected results and forecasts from
major companies.
Apple, Alphabet, Amazon and Facebook account for around 7 percent of
the S&P 500 and a fifth of the Nasdaq Composite, which has lagged
the broader stock market so far this year.
The S&P 500 is up 6 percent in 2016 while the Nasdaq has gained just
2 percent.
Many on Wall Street expect those leading technology firms to at
least meet or slightly exceed analysts' forecasts, strategists said.
A series of big surprises in either direction could lead to steep
stock swings.
Indeed, shares of Amazon have whipsawed following its most recent
reports, slumping 6 percent in one day after its December quarter
profits missed expectations and surging 10 percent the day after its
March-quarter results blew away forecasts.
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Wall Street widely expects sales of Apple's iPhones to fall this year for the
first time ever as it competes with cheaper rivals in China. But investors are
banking on the release of a new smartphone later this year to return Apple to
revenue growth in 2017.
"I'm looking at the numbers coming in next week, and Facebook, Google and Amazon
should all be strong. Apple is the only one I'm concerned out because of the
some of the issues they've had with lost market share," said Daniel Morgan,
senior portfolio manager at Synovus Trust Company in Atlanta. His firm owns
shares of Apple, Amazon and Alphabet.
On Tuesday and Wednesday the Federal Reserve holds its next policy meeting, with
futures prices implying most investors expect no interest rate hike until March
2017. Following the market's quick rebound from Britain's unexpected June vote
to leave the European Union, a minority of investors predict an increase as soon
as September.
"They're going to start setting people up for September. The economy is clearly
getting better and we're seeing less concern about international events," said
Stephen Massocca, Chief Investment Officer of Wedbush Equity Management LLC in
San Francisco.
Apple hands in its results on Tuesday, while Facebook reports on Wednesday and
Amazon and Alphabet report on Thursday.
(Reporting by Noel Randewich, additional reporting by Caroline Valetkevitch in
New York; editing by Linda Stern and Nick Zieminski)
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