Tech stocks hope for good earnings to power Nasdaq 100 higher
Tech stocks have struggled since mid-July, but earnings season may deliver a reason for the sector and the Nasdaq 100 to embark on a Q4 rally.
Tech stocks struggle as yields rise
Big tech stocks, including Apple, Microsoft, Amazon.com, Alphabet, Nvidia, Tesla, and Meta, have experienced a 7% drop over the past two months, compared to a 3% decline in the broader S&P 500. This decline can be attributed to the rise in Treasury yields, which have reached 16-year highs, causing investors to reevaluate their positions.
Big tech names see valuations fall
As a result of these declines, mega-cap forward price-to-earnings (P/E) ratios have fallen by 20% over the past two months, leading to their cheapest levels in six years. This has created a significant discount compared to the market based on long-term growth, a situation not seen since January 2017. However, despite these valuation declines, Goldman Sachs notes that the group is expected to post sales growth of 11% in the third quarter (Q3), far outpacing the 1% improvement expected for the S&P 500 as a whole.
Sector’s strong historical record
The sector has a strong record of outperformance when it comes to earnings. They have beaten consensus sales growth expectations 81% of the time and have outperformed in two-thirds of earnings seasons since the Q4 of 2016.
Q4 seasonality effect remains strong
Tech stocks have suffered sharp declines since August. The percentage of members of the Nasdaq 100 above their 50-day simple moving (SMA) average fell to 12% in early-October, its lowest reading in a year.
Historically, this low breadth reading tends to be followed up by a surge in the stock prices of big-cap tech stocks, and in the price of the Nasdaq 100 itself. In addition, seasonality for the sector remains positive, with the final quarter of the year seeing a positive performance for tech stocks over the past 20 years.
Concerns about the global economy remain, but with interest rates in the US appearing to have plateaued, a brighter outlook for mega-cap tech names appears to have arrived.
Nasdaq 100 technical analysis
After a huge run higher in the first half of the year, which saw the index gain 43% by mid-July, we have seen the Nasdaq 100 drop back.
Trendline resistance from the July high has prevented any near-term breakout for the index, but the 14,500 level has been staunchly defended in August and September.
A breakout above 15,370 would mark a more bullish view, and align with expectations of positive performance for the index as normally seen in the final quarter of 2023.
This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
Seize your opportunity
Deal on the world’s stock indices today.
- Trade on rising or falling markets
- Get one-point spreads on the FTSE 100
- Unrivalled 24-hour pricing
See opportunity on an index?
Try a risk-free trade in your demo account, and see whether you’re on to something.
- Log in to your demo
- Try a risk-free trade
- See whether your hunch pays off
See opportunity on an index?
Don’t miss your chance – upgrade to a live account to take advantage.
- Get spreads from one point on the FTSE 100
- Trade more 24-hour indices than any other provider
- Analyse and deal seamlessly on smart, fast charts
See opportunity on an index?
Don’t miss your chance. Log in to take your position.
Live prices on most popular markets
- Equities
- Indices
- Forex
- Commodities
Prices above are subject to our website terms and agreements. Prices are indicative only. All share prices are delayed by at least 15 minutes.
Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 15 mins.
