As the five giants in U.S. consumer technology prepare to report earnings next week, investors are showing a surprising amount of skepticism about their prospects.
Over the past three months, Apple (up 9.1 percent as of Thursday's close) is the only one of the five to top the S&P 500's 7.1 percent gain. Shares of Facebook, Google and Amazon.com are all in the red over that stretch, while Microsoft has gained 6.2 percent.
Reading too much into quarterly stock swings can be dangerous, but the underperformance is notable. After all, these are the companies at the center of a computing revolution that starts with the mobile phones and cloud computing and extends into drones, virtual reality and all manners of wearables and connected devices.
Barry James, who helps oversee about $6 billion in assets at James Investment Research, sees two main reasons for the megacap tech lag: Rotation to small-cap stocks and a historically strong dollar.
First, the small-cap story. The Russell 2000 Index of smaller stocks has been trounced by the S&P 500 over the past year, gaining 0.8 percent, while the larger stock benchmark rallied 12 percent.
The lag made small caps so cheap relative to their growth outlook in an improving economy that money managers are finally starting to pounce. In the past three months, the Russell is up 8.5 percent, beating the S&P 500 by almost 1.5 percentage points.
"The fourth quarter saw small caps start to take off," said James, who described his current buying of smaller companies as "nibbling." "We're putting more on our buy list. We're just starting to add them bit by bit."
James' firm in Xenia, Ohio, still owns some Microsoft and Apple, and he likes their long-term prospects, but the rising dollar could wreak some havoc. Half of Microsoft's revenue comes from outside the U.S., while Apple generates more than 60 percent of its sales internationally. For the three other big tech companies, the number ranges from 40 percent to 55 percent.
A higher dollar means that goods and services purchased in other countries from U.S. companies are getting more expensive, and thus less attractive. The dollar is gaining steam not just from an improving domestic economy, but also from weakness across the Atlantic, where European Central Bank President Mario Draghi announced plans Thursday for a 60 billion euro ($70 billion) a month bond-buying program.
"The number one sector affected by the dollar is the tech sector because they export so much," James said. "It makes it challenging for sure, and overseas earnings aren't so good."
Representatives from Google and Facebook declined to comment. Microsoft, Amazon and Apple didn't respond to requests for comment.
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Here's a little more on each company heading into next week's earnings:
Microsoft kicks off the big five announcements on Monday. While the stock has slightly lagged the broader market over the past three months, it's jumped 31 percent in the past year, thanks largely to Chief Executive Officer Satya Nadella's deeper push into cloud computing.