Tech Continues To Ramp

Friday was an amazing day for tech stocks as the Nasdaq increased 2.20%. The Dow rallied a few days ago because big companies within it reported great results. Today was the Nasdaq’s turn as MSFT, GOOGL, and AMZN all reported great results. Even companies which didn’t report were in on the action as Apple – AAPL was up 3.58% possibly on optimism about the iPhone X and Facebook – FB was up 4.25%. One company I didn’t discuss in the previous article was Intel which also had a great report. Adjusted earnings were $1.01 which beat estimates for $0.80. The company also raised full year guidance from $3.00 in EPS and $61.3 billion in revenues to $3.25 in EPS and $62 billion in revenues. This led Intel – INTC stock to increase 7.38% to an all-time high.

The optimism in equities is absurd as Q3 earnings reports look good so far in what was supposed to be a weak quarter because of the hurricanes. The only other time since 1990 that the S&P 500 was up over 0.75% to a new all-time high with this amount of advancing versus declining stocks was November 18th, 1999. We’re in an unusual time where earnings are justifying stock price increases which have previously been unthinkable. The chart below shows the changes in the market caps of the top 4 tech stocks. As you can see, AMZN added almost $62 billion in market cap in one day. The scary part about that for the bulls is the earnings estimates for Amazon were lowered to make the beat easy. In June 2017, the estimates for Q3 were slightly over $1. The report came in at $0.50. It beat estimates for $0.03, but it didn’t beat enough to match the estimates from 4 months ago. The other tech firms didn’t have their estimates lowered in that fashion. If you’re a bear, you’ll focus on Amazon’s low profit margins and NFLX’s negative free cash flow. If you’re a bull, you will focus on the profit growth of Microsoft, Alphabet, Apple, and Facebook. Apple reports earnings November 2nd and Facebook reports November 1st.