Earnings from some of the biggest US technology companies could push the market to new highs as talk of a stock bubble continues to ripple through Wall Street.
Investors who think soaring valuations are grounded in reality point to future profits from the likes of Apple and Facebook, which report results from last quarter after US markets close on Wednesday. Solid numbers could bolster the sentiment that stocks are the place to be, especially compared to low-yielding bonds.
Microsoft set the tone when it shared earnings after the market closed on Tuesday. The company exceeded Wall Street analysts’ expectations for quarterly revenue by nearly $3 billion and hit a three-month sales record. Shares are up 2% in premarket trading.
Breaking it down: The pandemic continues to buoy Microsoft’s business, which — as my CNN Business colleague Clare Duffy reports — has been bolstered by sales of computers and gaming systems, as well as the cloud computing tools helping companies facilitate remote work.
“These were blowout numbers that will be another feather in the cap for the tech sector,” Wedbush Securities analyst Daniel Ives told clients. “The cloud growth party is just getting started.”
Apple is also expected to show strong demand for electronic devices, especially given that it rolled out its new iPhone 12 last quarter. “Despite the later launch of iPhones, demand for the higher-end models remains robust,” Bank of America analyst Wamsi Mohan said in a research note this week.
Facebook, for its part, is poised to get a boost from new shopping and video capabilities, which are expected to have brought in significant revenue thanks to the sheer number of people glued to their phones and computers at home.
On the radar: We can’t forget Tesla, of course, whose results also arrive after the bell on Wednesday. With shares up 1,122% from their March low, the stock has become a symbol of current market excess.
The company has been profitable for five straight quarters, a first in its 17-year history. But now that it’s part of the closely-watched S&P 500, there’s new pressure to deliver. Guidance on 2021 deliveries will be crucial.
Greed has returned to markets, according to the Fear & Greed Index from CNN Business. Two of the metrics for determining market sentiment — stock price strength and market momentum — indicate “extreme greed.”
But strong results from internet giants will only feed the pro-stock narrative, pushing the tech-heavy Nasdaq Composite to new heights. Talk of a bubble is only due to increase.
“We don’t think that we are yet in the late stage of a bubble in the overall stock market,” John Higgins, the chief market economist at Capital Economics, said in a note to clients Tuesday. “Nonetheless, we acknowledge that the surge in the Nasdaq Composite suggests we may at least be in the early stage of a bubble again, even if the climb in the index is partly justified by the boost to earnings of companies in the technology sector from the pandemic.”