What Samsung's reaction to a putrid print may mean: Taking stock
Tech is, oddly enough, starting to show shades of its pre-meltdown days.
Two of the best S&P 500 performers last year prior to October, Amazon and Netflix, are in parabolic bounce mode. The former is now atop the market cap leaderboard at just under $800 billion (U.S.).
The Philadelphia Semiconductor Index, or SOX, is up more than 9 per cent in 8 sessions. That’s even more impressive when you realize it includes a brutal one-day pullback of nearly 6 per cent last week on the back of the Apple warning heard around the world.
Speaking of the once trillionaire, it looks like bad news is either being punished lightly, like how Apple (now with a market value of just over $700 billion) has recovered almost 6 points since last Thursday’s revenue outlook cut, or immediately bought, like Samsung’s quick-fire bounce on terrible numbers (shares fluctuated above and below the flatline for almost the entire session before ending the day modestly lower).
The headline miss from South Korea’s most-valuable company and the world’s smartphone leader was horrific — fourth quarter operating profit was 10.8 trillion won ($9.65 billion), or about 3 trillion below the average estimate and below the lowest surveyed by a mile, while sales missed consensus by almost 5 trillion won — and the forward-looking commentary wasn’t much better, with a near-term outlook for the memory business that may spell trouble for the semicap equipment names of the world.
One argument is that the negatives are all, or mostly, priced in. The tech bulls, who are still scarred from the recent carnage, might argue that the action in the sector from October to December accounts for much of this weakness, and Micron’s mid-December capex cut, Apple’s guidance reduction, and Samsung’s mammoth miss are only helping to wipe the slate clean.
The fact that Samsung didn’t tank off of this putrid print could be a signal to some that a bottoming process is in full effect for the global tech space. Many sell-siders have already been pumping their buys and/or upgrading their lesser-rated named in the belief that valuations may have gotten too out of whack for both old-school tech (S&P 500 info tech index) and new-school tech (the still somewhat fresh communication services sector).
For example, ever since the Apple debacle last week, we’ve seen two upgrades for Alphabet, one for Apple, Salesforce (and a separate addition to a bank’s “best ideas” list), Intel, Micron, Expedia, Etsy, and Dish as well as a buy initiation for Amazon (plus an addition to JPMorgan’s focus list this morning) and Goldman adding Netflix to its conviction list.
And the moves in this morning’s pre-market are only adding to the sentiment. My pre-market single-stock monitors are either blacked out (meaning zero trades have hit the tape yet) or lit bright green. But the interesting part is that the latter is almost entirely for stocks in the tech arena, like Nvidia +2% (despite a bull cutting estimates on inventory concerns), Advanced Micro +1.9%, Amazon +1.4%, and Microsoft, Netflix, Micron, Roku, Square, PayPal, and Twilio all up ~1%.
But before everyone gets giddy and starts buying anything tech-slash-momentum hand over fist in the hopes of a V-shaped recovery, I’d just brace for what could be a barrage of tape bombs that could 1) put a stop to the incessant melt-up, or 2) give pause to the bounce and offer dip buyers an even better opportunity to snatch up some of these value plays.
These could come in the form of ugly preannouncements (a la Apple), weak earnings (a la Samsung, though we still have a week and change before Netflix kicks things off), global economic downshifts (Germany just posted its worst year-over-year drop in industrial production since the end of the financial crisis), and any setbacks in the China trade negotiations, which could come fast with the completion of the two-day talks in Beijing.