Will the Technology Boom Continue?

Written by: Gary Ashton

It is a big week for big US tech companies with Apple (NASDAQ: AAPL), Facebook (NASDAQ: FB), Alphabet (NASDAQ: GOOGL), Amazon (NASDAQ: AMZN), and Twitter (NYSE: TWTR) all reporting 3Q20 financial results right after Thursday's closing bell. All told, about one-third of S&P 500 companies, that is about 170,  report earning results this week. So far this earnings season, about 85% of the S&P companies that have reported earnings have beaten Wall Street analysts' estimates. Investors and analysts alike will be keen to see if these big tech names can also exceed current market expectations.

Market expectations are running hot for everyone but Apple. Analysts expect a 3Q earnings per share (EPS) of just $0.69, a 1.43% downward revision from 90-days ago. For all the other tech names, analysts have revised earnings higher. Amazon has the most to prove due to the market's outsized earnings expectations stemming from the COVID-19 pandemic and the global shift to online shopping. 3Q earnings should come in at $7.27 per share, which is an upward revision of 44.53% from 90-days ago, according to Finscreener.com.

Analysts will be keenly watching the tech sector for signs of continuous upward momentum or market exhaustion. The tech-heavy Nasdaq 100 index is up 46.14% in the last year, according to data from Finscreener.com. Some analysts suggest the market is now overbought. Still, a strong 3Q earnings performance and an indication that fundamentals are intact will do a lot to fuel the market even higher for the rest of 2020.

US GDP Bounce Back Expected

It is not just earnings data that will impact the market this week. On the same day as big-tech earnings are released, investors receive a first look at third-quarter US GDP growth statistics. Economists expect data to bounce back sharply and predict growth of 32.5% compared to the contraction of 31.4% seen in 2Q20 because of the COVID shutdown.

Some analysts suggest this release is a crucial GDP figure for market psychology because so much is riding on the data.  No matter what happens, the stock market is likely to trade higher. For example, the US Congress continues to debate the need and size of an additional fiscal stimulus package. If GDP growth comes in sluggish, there will be extra political urgency to pass a stimulus package. Signs that this is near completion will propel the market higher. If GDP growth comes in better than expected, the US economy is healing faster than expected economic fundamentals improve, which will also propel the market higher.

The bottom line is that this week should be bullish for equity investors. Signs that big tech continues to rake in cash and a higher than expected economic growth from the US will do a lot to propel markets higher.

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