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Will Q4 Earnings Strengthen Tech ETFs Further?

After earnings releases from most of the major financial companies, the tech sector is now taking center stage. Most of the ace tech players are lined up to report this and next week. Investors should note that a rising rate environment, improving industry fundamentals, ongoing consolidations, and emerging technologies such as cloud computing, Internet of Things (IoT) and autonomous cars are benefiting the sector, pushing the stocks and ETFs to record highs this year.

In fact, four popular ETFs - Select Sector SPDR Technology ETF XLK , Vanguard Information Technology ETF VGT , iShares Dow Jones US Technology ETF IYW and MSCI Information Technology Index ETF FTEC - are up more than 3% each so far this year. These funds have the largest allocation to the four tech giants - Apple AAPL , Microsoft MSFT , Alphabet GOOGL and Facebook FB . IYW has the largest concentration in these firms with a combined share of 42.4%, followed by 38.7% for VGT, 36.1% for XLK and 34% for FTEC (read: 5 ETF Investment Ideas for 2017 ).

Let's dig deeper into the earnings picture of these companies that would drive the performance of the above-mentioned funds in the coming days:

Inside Our Surprise Prediction

Apple is slated to release earnings after market close on January 31. The stock has seen positive earnings estimate revision of eight cents over the past 90 days for the to-be-reported quarter. It has a Zacks Rank #3 (Hold) and an Earnings ESP of -0.31%, indicating lower chances of beating estimates this quarter. However, the iPhone maker delivered positive earnings surprises in three of the last four quarters, with an average beat of 0.11%. The stock has an unimpressive VGM Style Score of D.

Microsoft has a Zacks Rank #2 (Buy) and an Earnings ESP of +1.28%, indicating higher chances of beating estimates this quarter. It delivered positive earnings surprises in three of the last four quarters, with an average beat of 10.55%. The Zacks Consensus Estimate for fourth-quarter 2016 increased by a penny to 78 cents over the past three months. The stock has a top VGM Style Score of A. The company is expected to report after the closing bell on January 26 (read: Top-Ranked Sector ETFs & Stocks to Buy for 2017 ).

Alphabet has a Zacks Rank #2 and an Earnings ESP of -0.26%, indicating lower chances of beating estimates this quarter. Though the earnings surprise track over the past four quarters is good with an average beat of 4.55%, Alphabet witnessed a negative earnings estimate revision of eight cents over the past 90 days for the to-be-reported quarter. The stock has a top VGM Style Score of A. The company will report after the closing bell on January 26.

Facebook is expected to release its earnings report on February 1 after market close. It has a Zacks Rank #3 with an Earnings ESP of 0.00%, which makes surprise prediction difficult. Facebook delivered positive earnings surprises the last four quarters, with an average beat of 21.11% and saw positive earnings estimates revision of nine cents over the past three months for the to-be-reported quarter. The stock has a solid VGM Style Score of B.

Summing Up

Overall, the tech sector is expected to post earnings growth of 3.6% in the fourth quarter compared with 5.2% growth in the third. Additionally, it has a solid rank in the top 31%, suggesting some outperformance in the weeks ahead (see: all the Technology ETFs here ).

Given the favorable Zacks Rank and positive earnings outlook, surprises might be in the cards. This could give a further boost to the strength in the tech ETFs. In particular, the four ETFs mentioned above have a Zacks ETF Rank of 2.

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Apple Inc. (AAPL): Free Stock Analysis Report

Microsoft Corporation (MSFT): Free Stock Analysis Report

SPDR-TECH SELS (XLK): ETF Research Reports

Facebook, Inc. (FB): Free Stock Analysis Report

Alphabet Inc. (GOOGL): Free Stock Analysis Report

FID-INFOTEC (FTEC): ETF Research Reports

VIPERS-INFO TEC (VGT): ETF Research Reports

ISHARS-US TECH (IYW): ETF Research Reports

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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