Writing at Bloomberg, Michael Regan explains that the problems with tech stocks today “can’t be erased by a strong quarter or two.” He continues:
One is higher interest rates, which raise corporate borrowing costs and boost the appeal of bonds relative to stocks. Another is the Trump-induced trade war, which threatens to reshape global supply chains and make investors rethink internet companies’ overseas ambitions. Low unemployment has added labor market pressure, as exemplified by Amazon.com Inc. increasing its minimum wage. And with every discussion of social media’s role in election meddling or promoting hate, there’s a sense that the Facebooks and Googles of the world are going to have to play a larger, much more expensive role in helping police their services from now on.
Add it all up, and investors recognize that the setbacks several leading tech companies reported this earnings season may presage a longer-term reality. Facebook’s adjusted earnings growth is estimated to slow from 20 percent in 2018 to 5 percent in 2019, according to data compiled by Bloomberg; Google parent Alphabet Inc.’s, from 19 percent to 6 percent; Amazon’s, from 173 percent to 32 percent. Amazon declined to comment for this story; the other companies didn’t respond to requests for comment.
Read more here.
Jeremy Jones, CFA
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