Market outlook: Is it make or break time for big tech?

Market Updates

Published January 25 2021

With Tesla, Apple, Facebook and Microsoft all set to report their latest quarterly earnings this week, all eyes are likely to zero in on big tech.

Markets rise following Biden inauguration

In the lead up to and aftermath of Joe Biden’s inauguration as the 46th President of the United States – US markets rallied, and tech stocks continued to outperform.

Ultimately, Donald Trump’s presidency ended in a whimper, as the controversial leader remains barred from key social media platforms, including Twitter and Facebook.

Markets paid little attention to that distraction. Over the last five trading sessions the S&P 500 has gained 1.37%, the tech-heavy Nasdaq has surged 3.6%, and the Dow Jones Industrial Average finished out the week higher.

Tech remains in vogue

Investors continue to favour tech stocks, with the Nasdaq breaking fresh all-time highs last week, trading at the 13,366 point level. As we discussed last week, analysts remained bullish on Netflix heading into the streaming giant’s earnings. That bullishness proved to be spot on. Netflix smashed subscriber and revenue expectations last week and the stock rallied in response.

That event though pales in comparison to what’s coming this week. On Tuesday tech giant Microsoft is set to report its latest Q2; and on Wednesday Facebook, Apple and Tesla are set to report their own quarterly results. The significance of these two days cannot be understated. Those four companies alone have a combined market capitalisation of $5.63 trillion – equal to about 16% of the S&P 500 index.

Now, while some will contend that tech stocks are overvalued as a whole – as this latest round of high-profile earnings loom, the more relevant question will likely become: Are those companies listed above overvalued on an individual basis? Or more immediately: Will they beat or miss on expectations following their latest round of quarter results?

Given the combined market capitalisation of these companies, the possibility that their quarterly results could move markets – positively or negatively – remains something for traders to watch out for.

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