Tech Earnings Will Test Rally in Growth Stocks
By Akane Otani
Growth stocks are heading into the final week of January on
The Renaissance IPO exchange-traded fund, which tracks shares of
relatively new entrants to the stock market such as Uber
Technologies Inc. and Chewy Inc., hit a record last week. Tesla
Inc.'s market capitalization soared past the $100 billion mark for
the first time Wednesday. And the S&P 500 technology sector has
continued its run with its 6.2% gain for the year -- easily
outperforming the broader index, which has added 2%.
So far this year, investors' appetite for fast-growing companies
hasn't let up. But this week, things may get far more volatile: A
host of technology-driven firms are scheduled to report quarterly
results, including Microsoft Corp., Facebook Inc., Tesla, Apple
Inc. and eBay Inc. The numbers they release will give investors
some idea of whether one of the bull market's most dominant bets
Over the past decade, investors have been rewarded for paying a
premium for shares of companies that look poised to deliver
faster-than-average growth. That has left those shares looking even
more expensive than usual.
The gap between the valuation of high-growth companies and
low-growth companies is wider than what analysts have seen for
about 95% of the time over the past 25 years, J.P. Morgan Asset
Management said in a note.
Can the rally continue? Believers in mean reversion -- the
notion that stock prices that have run up spectacularly should fall
back to their long-term average at some point -- would argue that
growth stocks will eventually falter.
But so far this year, there hasn't been any sign of the growth
trade fading. Netflix Inc. fell 3.6% Wednesday, a day after missing
its forecast for U.S. subscriber growth for the third straight
quarter. It then rebounded to erase all of those losses over the
rest of the week.
"Longer term, we see little sign that the relentless growth in
the giant e-commerce businesses that have been such investor
favorites is slowing, " J.P. Morgan Asset Management said.
That being said, investors may be smart to turn an eye to "less
well liked and less expensive opportunities," the firm added.
Write to Akane Otani at firstname.lastname@example.org
(END) Dow Jones Newswires
January 27, 2020 07:30 ET (12:30 GMT)
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