Overlap of tech earnings, trade talks, Fed meeting will test stocks

Results from Silicon Valley come this week as investors continue to weigh global growth concerns.

  • By Amrith Ramkumar,
  • The Wall Street Journal
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A rebound in shares of beaten-down technology companies has helped steady the stock market following its worst quarter since 2011.

Their latest earnings results could dictate whether that momentum continues or market volatility picks back up.

Apple Inc. (AAPL), Amazon.com Inc. (AMZN) and Microsoft Corp. (MSFT) are among the large internet and software companies reporting fourth-quarter numbers this week. The figures will offer clues for investors waiting to see whether the sector can resume its role powering the stock market higher with robust sales growth.

Also reporting are other closely watched Silicon Valley firms including Facebook Inc. (FB), Tesla Inc. (TSLA) and Qualcomm Inc. (QCOM), as well as a number of industrial, consumer products and energy companies.

The rare confluence of those results with a Federal Reserve meeting, monthly jobs report and scheduled trade talks in Washington between the U.S. and China could upend the recent stretch of quiet trading in financial markets. Because Apple, Amazon and Microsoft are three of the four largest public companies in the world, some investors view their results as a barometer for economic activity and consumer spending. All three companies spooked investors in October when they reported slowing growth among their leading products or services.

Apple’s results, in particular, will be scrutinized heavily late Tuesday after a rare cut to its quarterly revenue forecast sent stocks tumbling Jan. 3. The iPhone maker cited slowing economic growth in China as a main culprit for the move, which came amid longstanding investor fears that plateauing revenue from the company’s flagship product could hurt shares.

After Apple’s warning, Wall Street analysts expect the company to report a 14% drop in quarterly iPhone sales from a year earlier, targeting nearly $53 billion in iPhone revenue. While many other technology stocks have rebounded in January, Apple shares are up less than 0.1% in 2019.

The stock, off 28% over the past three months, now looks cheap based on common metrics, trading at 13.3 times earnings in the past year, compared with 18.4 for the S&P 500 (.SPX), 44 for Microsoft and 94 for Amazon, according to FactSet.

Microsoft, now the world’s largest public company following Apple’s recent swoon and a pullback in Amazon shares, will report results after the market closes Wednesday, a few hours after the Fed releases its latest policy statement. Analysts project steady growth from its intelligent cloud segment, which includes server products and its Azure cloud-computing business. Quarterly revenue in that category is expected to increase nearly 20% from a year earlier, compared with overall sales growth of about 13%.

Amazon’s report for the holiday quarter is again expected to show steady revenue growth in its core retail and cloud-computing businesses. The figures, on tap for Thursday afternoon, are projected to show a nearly 20% rise in overall sales from a year earlier and 42% surge in revenue from Amazon Web Services, the cloud-computing arm some analysts expect to set the e-commerce company apart in the coming years. The Seattle-based company is projected to eclipse $2.5 billion in profit for the third consecutive quarter.

Amazon’s market value was recently $817 billion, compared with $823 billion for Microsoft and $746 billion for Apple. Amazon and Apple became the first U.S. companies to reach $1 trillion in market capitalization last summer. Google parent Alphabet Inc. (GOOG), valued at about $762 billion, is scheduled to report earnings Feb. 4 and will be the last of the so-called FAANG stocks—Facebook, Amazon, Apple, Netflix Inc. (NFLX) and Alphabet—to post results.

Netflix, which kicked off earnings season for the group, has seen its shares fall 4.3% since forecasting slower revenue growth Jan. 17, though the stock is still up 26% for the year. Facebook, meanwhile, is scheduled to report Wednesday. Its shares are up 14% for 2019 but still down 31% over the past six months.

With investors still weighing concerns about slowing global growth amid trade tensions, commentary from a number of industrial companies including Boeing Co. (BA), 3M Co. (MMM), Whirlpool Corp. (WHR) and Harley-Davidson Inc. (HOG) will also be in focus this week. Investors will be watching to see whether they echo Apple’s warning about China. Caterpillar Inc. (CAT) and 3M both said in October that U.S. tariffs on foreign steel and aluminum were increasing their costs.

Other big names on deck are McDonald’s Corp. (MCD), Verizon Communications Inc. (VZA), private-equity firms such as Blackstone Group L.P. (BX) and oil-and-gas producers Exxon Mobil Corp. (XOM) and Chevron Corp. (CVX) Friday’s numbers from Exxon and Chevron will coincide with this month’s jobs report.

Stronger-than-expected jobs growth in December and comments from Fed officials indicating they will be patient in raising interest rates have buoyed stocks to start January.

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