Big tech may halt earnings recession

NEW YORK/SAN FRANCISCO: Technology heavyweights might be all that keeps the U.S. earnings recession from extending into a fifth quarter in September if they hit the higher estimates Wall Street is calling for.

A bright spot in generally dour second-quarter results reported so far, technology is the only sector showing improved third-quarter analyst expectations, mostly because of strong scorecards recently from Facebook Inc, Google-parent Alphabet Inc, Texas Instruments Inc and others.

Analysts´ third-quarter expectations for all other sectors have been deteriorating since last year on worries about slower global growth and the strength of the U.S. dollar, according to Thomson Reuters data, though profit growth still is expected in consumer discretionary, materials and other sectors.

Technology profits, which this year have been the biggest contributor to S&P 500 earnings after financials, are now seen growing 3.1 percent in the third quarter, up from the 2.4 percent growth predicted a month ago.

Without the contribution of leaders like Alphabet and Microsoft Corp, for example, the entire index might show another quarter of slowing profit growth.

Part of the reason for strength in the tech sector may be related to the weight of just a few larger players.

In 2015, Apple Inc, Microsoft, Alphabet, IBM and Cisco Systems Inc pulled in combined earnings of $125 billion, equivalent to over half of all profits in the sector. "They have just become such powerful, dominant market players that they don't face quite the pressures of other companies," said Rick Meckler, president of LibertyView Capital Management in Jersey City, New Jersey.

"In the case of Facebook and Google, they continue to just steal share, advertising share, from traditional sources.

So they are truly shifting the pie towards them," he said.  All those companies beat Wall Street´s earnings expectations for the June quarter, except for Cisco, which is expected to report its quarterly results on Aug. 17. 

Tech´s improving outlook has been noted on Wall Street, where the tech-heavy Nasdaq has risen 12 percent since its June 27 post-Brexit referendum low.