This week the Nasdaq 100 reached its highest level ever at 7,415 points, helped by the FAANG stocks (Facebook, Apple, Amazon, Netflix, and Google) – especially as Facebook, Google, and Amazon hit record highs. These stocks have a large influence on Wall Street - so far this year, about 80% of the S&P 500 rise is due to only a few tech stocks!
The tech sector has risen about 15% this year, and represents the best-performing S&P 500 sector in 2018. The Nasdaq’s heavy tech influence should keep supporting the index’s price.
Let’s not forget that the recent tax overhaul policy provided tech companies with an opportunity to bring back income from overseas at a lower tax rate (between 8% to 15.5% instead of 35%), and that the corporate tax rate has been lowered as well (21% instead of 35%) increasing their profits. U.S. tech stocks have more cash to use for share buybacks, dividend payouts and M&A activities, which boosted their stock prices, and supported American indices.
Tech stocks are expected to deliver strong growth in Q2 earnings season. One tech company not supporting the index price is Netflix, having missed their quarterly subscriber target. Indeed, the company published 1 million fewer subscribers than expected, as the company added 5.2m net new subscribers instead of 6.2m in the second quarter.
Many tech companies will publish their earning reports next week, and they’re expected to be up 23.8% on 10.7% higher revenues in the second quarter, following 31.1% earnings growth on about 13% revenue rise in Q1 2018.
Tech valuations are high compared to the broader market so the companies must report strong earnings to support the momentum. The uptrend in the Nasdaq remains strong but growth expectations for the FAANG could begin to shift if the Netflix disappointment spreads to other big tech firms. Earnings from Facebook and Amazon this week will be key.
US Tech 100, daily chart(Source: LCG Trader, 20/7/18)
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