First-quarter earnings were supposed to be an elixir for U.S. technology stocks, the sector that had fallen more than any other in the month before the reporting season began. Then Treasury yields spiked and spoiled it.
The S&P 500 Information Technology Index has fallen 5.3 percent in six consecutive down sessions, the longest streak of losses in a year. The retreat in the high-growth sector came as the 10-year Treasury yield spiked to 3 percent. The rout in technology is more than double the broader stock market’s decline during the period.
The thinking was that solid earnings would provide a much-needed lift to tech stocks, which had been roiled by Facebook Inc.’s privacy scandal and concern that the government will move to more tightly regulate the industry. The surge in Treasury yields that coincided with the earnings releases dashed those hopes.
“Most of these stocks are classic ‘growth’ stories,” said Michael Antonelli, an institutional equity sales trader and managing director at Robert W. Baird & Co. “With this move in rates, they are under direct threat. It’s not so much that 3 percent is making people nervous, it’s the pace of rising yields.”
Concern over the impact of higher rates on a high-growth, high-valuation sector such as technology is probably outweighing any optimism over the technology stocks’ earnings, which, while not stellar, aren’t terrible either. Profits are running 6.9 percent ahead of estimates. But the stocks aren’t being rewarded. On average, they’re falling 1.4 percent the day after the quarterly results.
Qualcomm Inc. jumped about 2 percent in post-market trading on Wednesday after posting adjusted revenue for the second quarter that beat the highest analyst estimate. Facebook rose 4.6 percent after reporting its daily number of active users in the first quarter matched expectations. Options trading implies a 6.8 percent move for Facebook and a 5.5 percent move for Qualcomm on the day after their earnings releases, according to data compiled by Bloomberg.
Going into the earnings season, analysts forecast a
25 percent increase in profits for the largest group by weighting in the S&P 500, with chipmakers standing out with a 31 percent increase.