Tech Earnings Will Test Rally in Growth Stocks--Update
January 27 2020 - 6:14PM
Dow Jones News
By Akane Otani
Growth stocks are on track to close out the month as one of the
best-performing groups in the market.
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., rose to a record last week. Tesla
Inc.'s market capitalization soared past the $100 billion mark for
the first time Wednesday.
The S&P 500 technology sector slipped with the broader
market Monday but is still up 3.7% for the year -- outperforming
the broader index, which is up 0.4%.
Several technology-driven firms are scheduled to report
quarterly results this week, 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 remains
intact.
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 and low-growth
companies is wider than what analysts have seen 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. The shares rose 0.3% Monday to $35.48.
"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.
However, investors may be smart to turn an eye to "less well
liked and less expensive opportunities," the firm added.
Write to Akane Otani at akane.otani@wsj.com
(END) Dow Jones Newswires
January 27, 2020 17:59 ET (22:59 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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