The earnings season just concluded was undoubtedly another remarkable quarter for stay-at-home winners, especially the mega-cap tech companies. But lethargic reactions to good fourth-quarter earnings reports from the largest US tech companies also show that investors are uncomfortable buying these stocks when their valuations are so high and the reopening of trading is in full swing.
Take the example of iPhone maker Apple (NASDAQ :), which exceeded analyst estimates on almost every metric. Nevertheless, shares are down more than 5% since the announcement on Feb. 2.
Apple Weekly Chart.
Of the five largest stocks in the market, Alphabet (NASDAQ 🙂 and Microsoft (NASDAQ 🙂 are the only companies whose shares are higher after their earnings reports. The Google parent company has gained 5% since revenues and earnings per share on Feb. 2 that exceeded analysts' highest estimates, while Microsoft is up 6% since then.
Alphabetical weekly chart.
Microsoft Weekly Chart.
That lukewarm response from investors shows that it may not be possible for the big tech companies to outperform the market again in 2021, as vaccines are slowly returning the economy to normal, reducing demand for digital services and hardware.
With the reopening of the economy, investors are also concerned about possible regulations that should make it more difficult for technology companies to keep performing better, given the premium they charge in the general market.
Facebook (NASDAQ 🙂 is being scrutinized by many jurisdictions for its social media dominance, hurting its stock. The company posted record sales and profits as online shopping boomed for the holidays, increasing the use of the company's platforms during the pandemic.
Facebook Weekly Chart.
Shifting Sentiments
As technology stocks lag behind, money flows are diverted to cyclical groups whose revenues took a big hit during the pandemic due to the home environment. The hope of an economic recovery is reviving everything from small caps to once-neglected stocks like those in the energy sector. It's poised to hit the sixth month in a row.
Russell 2000 vs. NASDAQ 100 Weekly TTM
However, this shift in sentiment reflects the market's expectation that significant tax incentives coupled with the introduction of vaccines will increase the demand for raw materials and industrial products.
That said, some of the largest energy companies continued to experience financial difficulties in their fourth quarter earnings. Exxon Mobil (NYSE 🙂 posted its fourth straight loss, bringing its total loss for the year to more than $ 22 billion. Rival Chevron (NYSE 🙂 reported its loss in a row.
Heavy equipment maker Caterpillar (NYSE :), on the other hand, exceeded analyst expectations and said it expects stronger year-on-year sales this quarter, led by the construction industry.
The world's largest mining and construction equipment manufacturer is betting on a broad rebound in commodities markets that could resume activity in the metals and oil exploration companies after pandemic shutdowns. The stock is up about 24% this year and closed at $ 222.47 on Wednesday.
Caterpillar Weekly Chart.
Bottom Line
Some of the biggest tech giants, which have been behind the strong stock market recovery since the March dip, have failed to attract investors, despite strong growth in the fourth quarter. These technology aficionados are losing their luster over concerns that their growth will slow once the pandemic is under control and the economy reopens.
