(Bloomberg) -- After a brief respite, technology stocks looked poised to reprise their role as spoiler of the stock market party.
An exchange-traded fund tracking the Nasdaq 100 slid 0.6% after hours, erasing half of Thursday’s gain, after a sales forecast from Amazon.com Inc. trailed estimates. Uneven results from internet and software firms have made technology shares into goats this earnings season. The tech group had fallen 1% before Thursday, compared with gains in every other category -- some as much as 3%.
Tech’s losses aren’t huge but they are happening in the index’s biggest industry. At 22%, its representation is just short of the combined share of the next two largest. With Amazon disappointing and bellwethers such as Apple, Facebook and Alphabet yet to report, the dry spell has time to fester.
“The market could conceivably go to highs without technology leading,” Malcolm Polley, who oversees more than $1 billion as chief investment officer of Stewart Capital Advisors LLC in Indiana, Pennsylvania, said by phone. “But it makes it more difficult.”
Despite Thursday’s advance on better-than-expected results from Microsoft and Lam Research, broadly, the industry is off to a poor start of the earnings season. The sudden renewed focus on valuations has hurt software darlings, while a disappointing sales forecast from Texas Instruments dented optimism for a quick rebound in the computer-chip industry.
Amazon fell 7.2% as of 5:12 p.m. in New York, after profit tumbled for the first time in two years. Intel Corp. buoyed the sector, rising 3.5% in late trading after its results topped estimates.
Tech lagging behind is a switch from earlier in the year, when tech led the market despite U.S.-China trade tensions and a global economic slowdown. Part of the buoyancy is built on the industry’s earnings power. And right now, that power is being questioned.
Among tech firms that have reported, aggregate profits beat estimates by 6.7%, the third-best performance among major industries, data compiled by Bloomberg showed. Turns out expectations were higher for a group whose year-to-date returns are 10 percentage points ahead of the market. The stocks fell an average 4% on the first day post earnings, the worst of all major industries.
Tech’s absence is another headache for bulls watching the market repeatedly fail to reclaim new highs. While holding above the 3,000 level, the S&P 500 has been unable to progress further after coming within 10 points of its July peak twice this week.
To Yousef Abbasi, global market strategist at INTL FCStone, investors may want to look to other industries to lead, especially those trading at cheaper valuations such as banks.
“Tech is an important sector, but the onus shouldn’t and won’t squarely fall on tech’s shoulders,” Abbasi said. “With the Fed’s pivot over the past three months we believe that the market breaking out to new all-time highs will see more leadership from value - including financials and potentially energy.”
--With assistance from Sarah Ponczek.
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