Important information: The value of investments and the income from them, can go down as well as up, so you may get back less than you invest.

The earnings of the world’s largest companies will be the focus this week as investors wait to see whether the giants of US tech can break free of their current holding pattern.

The FAANGs - that’s Facebook, Amazon, Apple, Netflix and Google - have been treading water somewhat since November, when a resolution to the US election and the confirmation of successful vaccines against Covid-19 sparked a change in market sentiment.

Up to that point in 2020 they had been driving the US stock market higher thanks to their relative immunity from the pandemic, but since then most have lagged the market overall. Key to that change has been the renewed interest in ‘value’ stocks - those companies whose share prices look more attractive relative their earnings.

The thinking goes that a broad-based economic recovery, helped by the end of lockdown in the largest economies, will reignite those companies which tend to do best when the economy is growing quickly, including many of those hit hardest by Covid-19. That leaves the high-quality ‘growth’ companies, including the FAANGs, out of favour.

This week should tell us more about the strength of the growth-to-value rotation. A strong showing by the FAANGs will remind investors that, whatever their current valuations, these companies are still very good at making money.

We already have results from one of them - Netflix - which last week saw its price fall after reported subscriber numbers below market expectations. The hit from that means Netflix has been the worst performer of the FAANGs (in GBP terms) since mid-November.

Expectations are perhaps highest for Amazon, which reports first quarter earnings on Thursday. Net sales between $100 billion and $106 billion are expected, reflecting a 33%-40% improvement on the same period a year ago. Key for Amazon will be to see if looser lockdown restrictions lead to a reduction in the sums being spent online. That may not be evident in the numbers this week but will be watched closely in the month ahead.

Apple reports on Wednesday and it, too, is expected to show a large year-on-year jump in revenues. The comparison is only of limited use, however, as last year’s number was affected by the start of the pandemic. Investors will be looking, as ever, at iPhone sales but with attention also on the growth of Apple’s services division. Services is now second only to the iPhone in terms of revenue generation within the company and growth here will help reinforce the view that Apple is transforming from a luxury tech manufacturer to something more like a consumer staple company - a status that has tended to support even higher valuations.

Google - or rather it’s parent company Alphabet - has performed the best of all FAANGs since November. That’s down in part to expectations that online advertising is now set to take off after a slump last year. The early months of the pandemic saw companies pull back on ad spend but the renewed optimism since November has helped erase those falls. A strong showing on Tuesday could see the company build on that recovery.

Finally, Facebook reports on Wednesday and is also hoping to see a sharp bounce in online ad spend. A complicated dispute with Apple in the past year - concerning the data which Facebook can access on Apple’s iOS 14 platform - may have impacted the social network’s top line and any update could affect sentiment of the company.

Whatever happens to the share prices of the FAANGs this week, their results are likely to show huge amounts of money being earned. What’s more, the results might also show those amounts rising more quickly as the economy begins to pick up. That could make the growth-to-value calculation even more complicated.

Important information: Overseas investments will be affected by movements in currency exchange rates. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. Investors should note that the views expressed may no longer be current and may have already been acted upon. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to a Fidelity adviser or an authorised financial adviser of your choice.

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