Today is a big day for the Technology sector, with earnings
) after the close, and the introduction of
) highly anticipated Windows 8 operating system and Surface
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Earnings reports aside, the weekly Jobless Claims and monthly
Durable Goods reports this morning both came out better than
expected, helping set the stage for some optimism in today's
The third quarter earnings season has been quite weak overall,
but results from the Tech sector have been even weaker. As of
this morning, we have results from 216 companies in the S&P
500 or 43.8% of the index's total members. Total earnings for
these 216 companies are down 3.1% from the same period last year,
with only 58.8% of the companies beating earnings expectations.
On the revenue side, total revenues for these 216 companies are
up 1% from the same period last year, but only 36.6% of the
companies have come ahead of revenue expectations. This is the
weakest quarterly earnings performance for these 205 companies in
quite a while and puts the S&P 500 on track for producing the
weakest earnings show thus far in the earnings recovery cycle
that got underway in late 2009.
By far the weakest sector in the S&P 500 remains the
economically sensitive Basic Materials sector, with total
earnings down 36.9% and less than a quarter of the companies
coming ahead of earnings expectations (only 14% of Basic
Materials companies are beating revenue expectations). While the
Tech sector is not the weakest in the S&P 500 thus far, its
performance has definitely been weaker than the aggregate index
results, and that is a big climb down for this otherwise growth
Ahead of the Apple report this afternoon, we have results from
52.2% of Tech sector companies, with total earnings for these
companies down 7.5% from the same period last year. Importantly,
only 52.8% of the Tech companies have beat earnings expectations.
This is far weaker performance than what these same companies
have produced in recent quarters.
The composite Tech sector earnings growth rate for the quarter,
when we combine the reports that have come out with the reports
that have still to come (including the Apple report this
evening), is still modestly down (negative 0.2%). If we exclude
Apple from the composite number, the sector's quarterly earnings
growth rate drops to negative 5%.
Amazon is not much of an earnings story, given the company's
fixation on growth and market share. It will be interesting,
however, to see how the company perceives the competitive
challenge to its Kindle Fire tablet from Apple's iPad mini.
Unlike Amazon, Apple is a big deal on the earnings front, as it
alone brings in roughly 20% of the Tech sector's total earnings
and carries enormous weight in the stock market indices.
The overall trend on the estimate revisions front has been on the
negative side lately, with the current Zacks Consensus estimate
for the quarter of $8.85 for the quarter down from $8.93 seven
days back. We see a similar trend for annual estimates for this
year and next.
Zacks ESP or Earnings Surprise Prediction, our proprietary
leading indicator of earnings surprises, is showing both Apple
and Amazon coming short of earnings expectations in their reports
today. Should the Zacks ESP turn out to be accurate, the earnings
reports from these two Tech leaders will be in-line with what a
majority of their peers have come out with this earnings