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Morning Notes — Tech During Earnings

Tech During Earnings

July 28, 2020

Tech companies tend to report later in earnings season, but a handful of names that reported better than expected results last week traded lower, raising concerns about crowded positioning in the sector. Concentration issues are common in sectors that display secular growth characteristics but high volatility declines typically only develop in highly levered industries faced with a systemic catalyst like a recession or excessive Fed tightening. And the Tech sector doesn’t seem to be experiencing any profitability issues at the moment. The results we’ve seen thus far are beating high expectations, but maybe not by the same magnitude as other sectors with low expectations. There’s been a clear preference for Tech over the last year, leading to enough over positioning where a lower relative surprise could cause weak-handed selling. This could be with us through earnings season even if companies beat and raise, but should first be viewed as an opportunity to add. Some of the more interesting reports to watch this week include AKAM and TENB (this afternoon), NOW (tomorrow) and AAPL, AMZN and TEAM (Thursday).

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