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.

As Jeff Bezos takes a trip into space today, investors will be hoping some of the Amazon founder’s chutzpah can rub off on stock markets. A summer malaise appeared to descend on stocks yesterday amid signs the Delta variant of Covid-19 continues to spread and after Sunday’s OPEC agreement to raise oil production shaved several dollars off the oil price.

Rising cases of Covid-19 are very likely to weaken confidence and economic activity this summer, causing forecasts for the whole year to be downgraded. Inflationary pressures could ease sooner in this environment. However, owing to the continuing rollout of highly effective vaccines, the big picture remains one of the world’s economies gradually returning to normal, as consumers deploy some of the savings accumulated during lockdowns and governments make good on their pledges to “build back better”. These factors bode well for stocks.

As the second-quarter earnings season steps up a gear this week, investors will get to take a first look at how some of America’s large technology companies have been faring since vaccines were widely rolled out and lockdown restrictions eased.

Key metrics to look out for will be Netflix’s global paid subscribers number – which fell short of expectations in the first quarter – earnings at Intel as the chipmaker builds additional manufacturing capacity, and average revenues per user (ARPU) at Snap and Twitter, both of which have historically struggled to keep pace with Facebook’s impressive ability to convert eyeballs into cash.

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Results from Netflix will, perhaps, be the most keenly viewed for evidence of a further change in consumer habits after lockdown. The company had it mostly its own way in 2020, but has since had to downwardly adjust its sights.

First out of the blocks this earnings season, IBM surprised markets late Monday with a second consecutive quarter of modest revenue growth after years of failing to grow sales. Total cloud computing revenues – a current and future source of premium growth for the business – increased by 13% to US$7 billion1.

After a blowout 2020, US tech giants face an uphill struggle if they are to surprise investors positively yet again. Latest analysts’ estimates suggest information technology companies grew their earnings by approximately 31% in the second quarter over the same period a year ago – no mean feat if achieved, given the favourable tailwinds already prevailing back then2.

If you look at the performance of the Nasdaq Index this year you’ll see how technology stocks have boosted US markets to new highs. Now, as lockdown restrictions begin to ease, the question will be whether the baton will be passed to other sectors to lead the race or technology continues to be the ‘Intel-inside’ powering future US market highs.

For those still tempted to gain exposure to US technology stocks, Select 50 funds such as Rathbone Global Opportunities and Jupiter Merian North American Equity both hold a high exposure to the US tech giants with names like Netflix, Google-owner Alphabet, Paypal, Facebook and the like among the top ten holdings. Scottish Mortgage Investment Trust, managed by James Anderson, likewise holds a solid chunk in tech names like Amazon and Tesla, as well as Chinese e-commerce giants Alibaba and Tencent. You can read more on Scottish Mortgage here.

Source: 

1 IBM, 19.07.21
2 FactSet, 16.07.21

Important information: Investors should note that the views expressed may no longer be current and may have already been acted upon. 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. Select 50 is not a personal recommendation to buy or sell a fund. Overseas investments will be affected by movements in currency exchange rates. Investments in emerging markets can be more volatile than other more developed markets. 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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