What’s up with tech?
Share prices lag
Markets started out
2023 with a strong
rally, as can be seen
by looking at both
the S&P 500 as well
as the Nasdaq.
CHART
But as Q1 came to a
close tech seemed
to falter, while The
S&P 500 proved
somewhat more
resilient. In fact,
over the past two
weeks tech moved to
a loss.
CHART
What’s going on?
Q1, 2023 earnings
season begins
tomorrow, with
several banks set to
report. As always,
when earnings
season approaches
investors are quick
to scour regulatory
reports as well as
the news for signs of
weakness or
strength. It seems
investors are
becoming concerned
about the top line
and the bottom line,
or revenue and
earnings. We can
look at forecast top
line growth
CHART
And see the entire
S&P 500 is only
expected to grow
revenues by 1.8%.
Looking at sectors
we see five are
forecast to
outperform The S&P
500, specially
Finance, Consumer
Discretionary,
Industrials, Real
Estate and
Consumer Staples.
At the same time, six
are forecast to
underperform The
S&P 500, specifically
Communication
Services,
Healthcare, Utilities,
Information
Technology, Energy
and Materials.
While revenue, aka
“top line” is important
what is more
important is the
“bottom line”, or
earnings. We can
look at forest bottom
line growth
CHART
Where, again looking
at sectors, we see
only five sectors are
expected to print an
increase in earnings,
specifically
Consumer
Discretionary,
Industrials, Energy,
Financial and Real
Estate. This comes
amid the backdrop of
the entire S&P 500 is
forecast to print a
6.8% drop in
earnings. Finally,
we see fie sectors
are forecast to show
a drop in earnings
and among them
Information
Technology, with a
drop of 15%
expected.
Share prices are
determined largely
by two factors: per
share earnings and
valuation multiples.
https://corporatefinan
ceinstitute.com/reso
urces/valuation/types
-of-valuation-multiple
s/
We see Technology
earnings are forecast
to fall. If there isn’t
an increase in
valuation multiples,
for example, Price /
Earnings, then share
prices will fall.
WILL SHARE
PRICES FALL 15%
since that is the
forecast contraction
in earnings? No,
the relationship isn’t
that concise. But
investors seem to
believe share prices
in this sector are
likely to fall. Which
is why we’re seeing
tech faltering over
the past two weeks.
If you think that is
the bad news, you’d
better sit down.
Earnings across The
S&P 500 are
expected to fall
about 6.8% and, you
likely know the
argument at this
point: yes, there are
many who believe
share prices could
fall, over the next
quarter or two.