Saturday, June 30, 2018

Tech Stocks Step Into The Second Half

Tech stocks step into the second half with the first half just completed. We had been bullish that we'd come out of Q1 with good guidance. Q2 earnings reports should also see good guidance so we expect good reactions. The question is the macro.

Finger On The Trigger For Earnings Season

We had no clarity from President Trump on trade Friday as had been rumored.  We expect tech stock earnings season should show strong Q2 reports as well as strong guidance versus the Street for Q3. The combination should be good for tech stocks when we reach earnings in two weeks.

In The Meantime Macro 

What's bothering us about macro right now is that the US administration's call for "export controls" would hit revenue targets of key tech stocks. That makes macro trade policy relevant for tech stocks.

General Motors (NYSE:GM) just complained that tariffs would "lead to a smaller GM."

Tariffs however only lead to raised prices and likely result in lower demand. Export controls, however would directly cut revenues stopping "industrial significant technology" from shipping at all. We need clarity on this progressing legislation.

Tech Stocks Up In First Half

As you know we've been bullish on tech stocks which have run nicely. Tech heavy ETFs like NASDAQ ETF QQQ, XLK and the Semi Index SMH are all up year-to-date.

The ETF SMH may be the most exposed to export controls since semiconductor companies have meaningful exposure to China. That's the index to watch to understand trade sentiment.

The ETF SMH was down 3.7% on the news last week implying concern about the US' new export control risk.

Conclusion

Earnings start in two weeks. We're bullish for earnings but not bullish about the macro trade news just yet.  If we don't get some trade truce ahead of earnings in two weeks we still most likely want to be exposed to our top ideas for earnings. We hope that the trade news doesn't affect guidance but we'll have to make that decision closer to earnings.



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