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It’s not feeling like a Friday in the financial markets this morning as negative earnings from Intel (INTC) weigh on sentiment. S&P 500 futures are indicated to open down about 0.4% while the Nasdaq is taking it much harder with a decline of 1%. While traders couldn’t get enough of big tech last week, they cant get away from it fast enough this week.
Be sure to check out today’s Morning Lineup for a rundown of the latest stock-specific news of note, key earnings news in Europe and the US, global PMI data, trends related to the COVID-19 outbreak, and much more.
The majority of companies have been reporting better than expected EPS and revenues this earnings season, and most of these positive surprises have been greeted with rising stock prices. One exception, though, appears to be large-cap tech. The latest examples this week include Microsoft and Intel. While both stocks reported better than expected EPS and sales, their earnings reports have been met with selling. In the case of MSFT yesterday, its 4.35% decline was the most negative earnings reaction for the stock in more than four years. INTC, meanwhile, is already trading down over 13% in reaction to earnings after issuing a weak forecast. The last time it had a worse one-day reaction to earnings? 2002.
The sell the news reaction we’re seeing so far in tech is the result of two things. First, the stocks have run so much heading into earnings season that the bar was set extraordinarily high. Second, valuations. The chart below shows where the current P/E ratios of S&P 500 sectors stand relative to their 10-year averages. Currently, the S&P 500 is in the 99.9th percentile relative to all other periods in the last ten years, and that high reading is being driven by lofty valuation in Consumer Discretionary (99.8th percentile) and Technology (99.6th percentile).