Facebook, Apple and Tech Dominate as Investors Weigh Debate Results
After a string of tech sector earnings disappointments, expectations are high that Facebook could miss the mark when it releases its second earnings report as a public company Tuesday.
Facebook reports after the closing bell, but tech news should dominate the trading day, as Apple also unveils its new i-Pad mini at 1 p.m. ET. There should also be action in some names that reported late Monday, including Yahoo!, an exception to tech's disappointing third quarter story. Its stock jumped after it beat on the top and bottom line.
Texas Instruments, however, warned that its profits and revenues would be weaker than analysts' expect for the current quarter, after it reported a third quarter drop in revenues. Western Digital beat on both the top and bottom lines, but a rally in its shares reversed course after it gave a lowered second quarter forecast and said it sees a "muted demand environment."
Tech profits have been bumpy across the board, as PC demand has waned and the industry finds it difficult to monetize the mobile boom. Big companies like Intel , IBM , Google and Microsoft, either missed on top or bottom line, or made weaker forecasts.
Tech stocks have been lagging recently, but some of the sector bounced back Monday as investors moved in to Apple ahead of Tuesday's announcement. Traders said they also saw short-covering, which helped lift Apple's stock price. "If there's one industry that can give you a true barometer on global growth, it's tech," said Jack Ablin, CIO of BMO Private Bank.
"The problem for equities in general is the growth concerns…it's not a very good earnings season and it's weighing on the market," said Dan Greenhaus, BTIG global market strategist.
Greenhaus said the market rallied up to what was a poor earnings season, but now it is looking past the numbers and focusing on election and fiscal cliff issues. Investors Tuesday will be assessing Monday's presidential debate, the final one before the Nov. 6 election.
As for the earnings, "from a headline standpoint, it's a little worse than expected. From a numbers standpoint , the earnings per share are coming in better-than-expected. Revenues are flat, and that is better than expected," Greenhaus said.
"We have 27 percent of the S&P reporting already. We're into it, and we haven't crushed the rally," Greenhaus said.
So far, earnings of S&P companies that have reported and are expected to report are down 2.4 percent for the quarter, the first decline since 2009, according to Thomson Reuters. Sixty percent of companies have reported earnings above estimates, but an unusually large amount - 61 percent - have missed revenue forecasts.
"You're getting these punk readings from Fedex and IBM and McDonald's… I just hope it's a temporary pause before the election," Ablin said.
He said he is cautious on stocks, but he does not expect to see a major market decline at this point, and he is sticking to his S&P 500 forecast of 1450. "We're still in, and we're watching momentum. I'm hoping we can regain the 1450 number. If we start to see deterioration here, I think we're going to tread water for a while. I don't think anything's going to fall off the table until after November," he said.
Stocks turned around late in the session Monday, with the S&P tech sector, leading the market higher with a nearly one percent gain. The Dow was up 2 at 13,345, while the S&P 500 ended up less than a point at 1433, just under its 50-day moving average. Nasdaq jumped 11 to 3016, as Apple gained nearly 4 percent. Traders said the market began to rise after a news story suggested the Fed could discuss expanding its quantitative easing program, or QE3 at its two day meeting Tuesday and Wednesday.
"We're still not fighting the Fed," Ablin said. "Investors believe there's some dry powder left."
BTIG's Greenhaus said it makes sense the Fed would discuss expanding its current mortgage purchase program, or QE3, to include Treasurys, when its other program, Operation Twist expires at year end. That discussion could start at this week's meeting, he said, but no decision is likely until the December meeting or later. The Fed is buying $40 billion in mortgages securities in an open-ended QE3 program. Operation Twist involves the purchase of longer-dated Treasurys and the sale of an equal amount of shorter duration notes.
"There was always the possibility that the Fed, in order to make up for the impact of Operation Twist, would expand the QE size," he said. He said he has thought it likely the Fed will add $20 to $30 billion in Treasury securities to its monthly asset purchases.
Facebook reports after the bell, and it is expected to earn $0.11 per share on revenues of $1.23 billion, according to FactSet.
"The stock is set up to miss," said Michael Pachter, Wedbush managing director, equity research. He expects to see $0.09 per share on revenues of $1.27 billion. "There's room for disagreement on the number of shares and room for disagreement on tax rates."
"I think the street has modeled it wrong," he said. Pachter said he hopes to see Facebook executives provide some clarity on how they're growing the company, and what they are spending.
Other companies reporting Tuesday include Dupont, MMM, United Technologies, Coach, UPS, Harley-Davidson, Xerox, Whirlpool, Ryder, Virgin Media, Regions Financial, AK Steel, MeadWestvaco, CIT, Air Products, nd Lexmark, all before the opening bell. Besides Facebook, Gilead Sciences, Amgen, Aflac, Norfolk Southern, Panera Bread, VMWare, Netflix, Altera, Boston Properties, Hanesbrands, and Buffalo Wild Wings report after the close.
The Treasury auctions $35 billion in 2-year notes at 1 p.m.