Tech stocks still look completely unstoppable after earnings season


mark zuckerberg happy handshakeReuters / Beck Diefenbach

  • Tech stocks have been an invaluable part of broader
    stock market strength in 2017, returning more than double the
    benchmark S&P 500.
  • Skeptics said for months that the air would have to
    come out of tech stocks, which they said had gotten
  • Tech companies have responded by reporting some of the
    best earnings growth out of any sector in the S&P

The tide was supposed to turn for scorching-hot tech stocks.

To hear skeptics tell it, the group, which was so crucial as
major equity indexes ripped past
record highs for much of 2017, was getting overextended. And that
was supposed to result in a sharp move lower not just in tech but
for the whole market.

As recently as October, hedge funds and other large speculators
were the most bearish in 16
on tech. Back in August, investors sold more than $1
of tech stocks in one week, the biggest offloading
since January 2016. Uncertainty was high even back in mid-July,
when the traders were paying their biggest premium since
for hedges against tech losses.

But tech has kept doing what it does best: expanding corporate
earnings at a blistering pace. And that has alleviated concerns
of a slowdown. After all, earnings growth has been proved time
and time again to be the fuel that keeps the 8-1/2-year bull
market running.

Tech companies in the S&P 500 expanded
profits by 22% in the third quarter, the second-most in the
index, trailing only energy, according to Goldman Sachs data. The
firm found that the stellar performance was driven by
above-forecast 17% sales growth and margin expansion.

And as was the case earlier in the year, tech wielded outsize
influence over the rest of the stock market. Earnings surprises
in the sector contributed to almost 90% of the benchmark’s
overall profit beat, relative to consensus estimates, according
to Goldman data.

Screen Shot 2017 11 13 at 4.31.48 PMGoldman

As of Monday’s close, tech stocks in the S&P 500 had surged
37% in 2017, more than double the benchmark. That includes an
8.8% gain since the start of October.

Going forward, internationally exposed mega-cap tech companies
are expected to benefit from President Donald Trump’s proposed
corporate tax cut, since they pay
among the highest effective rates. Further, because so many large
tech firms do so much business overseas, they’re also among those
best positioned to benefit from the repatriation tax holiday
proposed by the GOP.

Here’s a look at how market-wide earnings growth — driven by tech
— is expected to fare in the coming quarters:

Screen Shot 2017 11 13 at 3.14.10 PMGoldman