With the third-quarter earnings season almost over, it becomes clear that technology companies, which have driven the nine-year bull-run on the market, are returning with a roar after a short break in the summer.
If the trend persists for the remainder of 2019, technology stocks could close their best year in a decade, reflecting the strong confidence of investors in companies that hold memory chips, mobile phones and some of the largest social media.
S&P 500 Technology Stocks Weekly Price Chart
The sector achieved a gain of 41% this year, keeping the lead of 24% and the biggest progress of a year since 2009 on the right track. In addition to Apple (NASDAQ 🙂 and Google parent Alphabet (NASDAQ :), other giants from the FAANG group were unable to produce extraordinary Q3 revenues.
Among technology shares, investors also found great value in the sector that produces chips for smartphones, gaming and data centers. This year, the ETF following the sector, the VanEck Vectors Semiconductor ETF (NYSE :), has risen by around 50%. In the last month alone, the ETF has won more than 9%.
VanEck Vectors Semiconductor ETF
One of the biggest winners in the sector is semiconductor manufacturers, as well as the companies that make devices to make chips. This profit suggests that investors are confident that technology companies will be able to continue to deliver robust revenue and profit growth, even if the wider economy shows signs of cooling.
An important part of the market that showed some cracks is the retail trade. Slow sales on Home Depot (NYSE :). and Kohls Corp ] ] (NYSE 🙂 showed that not all retailers have a field day and these companies need some internal adjustments.
Home Depot (NYSE 🙂 blamed his disappointing quarterly sales on investments that needed more time than expected. The home improvement chain has tried in recent years to integrate its online activities more closely with its network of around 2,290 physical stores. But if you look at the big box of retailers, the party still seems to be going on.
Industrial recession continues
At the beginning of this month, Walmart Inc (NYSE 🙂 reinforced the full-year earnings forecast and reported that comparable US sales were 3.2% higher in the last quarter than a year earlier, ahead of analysts' estimates. The increase in comparable sales reflects both the growth of transactions, a traffic proxy, as well as ticket prices, which can reflect that consumers are buying more expensive goods or filling their baskets with more items. The company also posted a 41% increase in e-commerce revenue from a year earlier, bringing the full-year estimate of online sales growth of around 35% within reach.
Another retail giant, Target Corporation (NYSE 🙂 has increased the full year outlook again after reporting strong sales and profitability for the third quarter. The retailer has delivered an excellent performance this year by opening smaller locations in urban areas, introducing a steady stream of new store brands and expanding the number of ways customers can get their orders. The share had increased by 91% this year up to and including Thursday and beat other colleagues enormously.
For the remainder of the year, retailers will continue to benefit from strong consumer spending, low unemployment, rising wages and low petrol prices.
Unlike retailers, industrial companies did not have much hope for a recovery in their sales for this year. 3M Company (NYSE :), one of & # 39; the world's largest industrial conglomerates that makes things from post-its to air filters and touch screens, lowered its profit and sales forecast for 2019 last month, with Chief Executive Officer Michael Roman who " challenging "quoted macroeconomic environment. This weakness was widely supported, suggesting that the demand for its industrial products is being hit from all directions.
& # 39; The world's largest manufacturer of mining and construction equipment, Caterpillar (NYSE 🙂 reported the first fall in quarterly earnings in almost three years and said it expects demand to be the same in the fourth quarter.
Bottom line
The earnings season for the third quarter clearly demonstrated that the two main pillars of American business – technology and retail – deal well with economic uncertainties after the US-China trade war and that the earnings recession did not spread to other parts of the economy. That said, the & # 39; s risks to growth have not been completely eliminated and may offer more clues in the next quarter.
