As the earnings season begins to heat up, the stock market will begin to shift tremendously because investors and traders will be given surprises that cause them to buy and sell. This will be further influenced by the light volume over the past few weeks which has kept the market in check. Moreover, earnings have a tendency to dictate which direction the overall market will go for the near term. For instance, if the vast majority of companies are proving to be thriving then the overall market direction will point upwards and vice versa.
The first important day for the technology sector will come on Thursday January 19th because four of the biggest technology companies are reporting fourth quarter earnings. These four are Google (GOOG), Microsoft (MSFT), Intel (INTC), and Skyworks Solutions (SWKS). It is likely these four companies will report strong numbers which will send the broader market higher.
One important note to make before moving forward is that not one of the four companies will solely send the stock market higher. In other words, it will take a group effort to send the broader indexes higher, especially the Nasdaq. Fortunately for bulls, it is very likely these companies will follow through and give the three U.S. indexes a big rally on Friday.
Analysts are expecting Google to report revenue at $8.40 billion with EPS at $10.48. To review, Google's third quarter results substantially surpassed expectations. Therefore, there is a great deal of anticipation heading into Google's fourth quarter report for two reasons: 1) investors and traders have heightened their expectations, and 2) investors and traders will want to hear a serious long term plan for Google+, YouTube, and Motorola Mobility (MMI). This will be the most important aspect of Google's earnings report and conference call.
With that said, investors should not worry because Google has a proven track record of sending the company in the right direction. Therefore, investors should expect to see Google deliver a strong balance sheet as well as future plans to develop the company. It is important to note Google has the potential to shift the broader markets because Google has a footprint in nearly every aspect of the technology industry. Therefore, Google is an excellent company to base economic patterns off of. This is important because if Google indicates spending is still improving, we will see a bullish run for at least a few days unless other companies counter Google's bullish remarks with bearish undertones.
Microsoft's earnings will be as important as Google's. It is important to note, however, that Microsoft's share price has varied between a trading range for a decade. Therefore, investors should not expect any kind of outlandish results that send the share price dramatically higher. Instead, investors should expect to see Microsoft report in line earnings with few business surprises.
Analysts are expecting Microsoft to report revenue around $20.94 billion with EPS at $0.76. Microsoft should surpass revenue expectations by a wider margin than EPS. Therefore, Microsoft's share price will move slightly higher on Friday. However, when you combine Microsoft's positive earnings with the three other companies listed here, investors will see Microsoft's share price surge due to bullish momentum.
Similar to Google, Microsoft has a foot in several technology markets. Because of this Microsoft's earnings report is very important for the broader market. Microsoft's insight will cause sharp movements from the chip industry to the data storage industry; which are two of the larger industries within the technology sector. Therefore, the stronger the company's earnings, the higher the broader indexes will move. I must reiterate that Microsoft will not send these industries higher alone. It will take the help of Google and Intel to push the broader market substantially higher.
Analysts are expecting Intel to report revenue in the range of $13.71 billion with EPS at $0.61. Intel is coming off a blowout third quarter that saw revenue increase almost 30% on a year over year basis. This momentum will continue for Intel and investors should expect to see Intel report a strong fourth quarter. Even though Intel reports on Thursday, Intel's competitor, AMD, does not report until the following Tuesday. Therefore, investors will have to wait to get a full view of the chip and PC industry.
Nevertheless, there are a few options that can happen: 1) AMD and Intel will report strong earnings with a good enough guidance; which will send the broader market soaring; or 2) Intel's record quarter will outweigh AMD's in line quarter. It is unlikely that AMD will outperform Intel on a comparative scale because Intel is riding a huge wave of momentum on the balance sheet as well as the share price. Despite Intel's revenue adjustment in December, the company is likely to surpass analysts expectations.
More importantly, investors and analysts will want to hear about Intel's forecast. During the third quarter conference call Intel delivered a phenomenal forecast; which was later adjusted lower. However, investors may see another strong guidance if chip inventories have dwindled. Nevertheless, as Intel reported before, desktop computer sales are likely to weaken because laptops and other more versatile computer devices are more efficient in today's fast paced environment.
Furthermore, if this is a continuing trend we are likely to see Intel, as well as AMD, move towards a stronger laptop focus. Whichever the case, Intel will provide investors with strong earnings to send the share price and broader index higher. It may seem ultra bullish to expect Google, Microsoft, and Intel to report strong earnings in the same afternoon, but this is a possibility and, if it happens, the broader indexes will soar throughout Friday's trading session.
Skyworks Solutions, the final major technology company to report Thursday evening, is expected to report revenue around $389.63 million with EPS at $0.50. Skyworks is an interesting story because the company is one of the suppliers for Apple, yet the share price has been punished over the past year. Therefore, if Skyworks is able to provide strong results that top analysts expectations and give a positive guidance, Skyworks' share price will soar because traders will assume the company is a major part of Apple (AAPL).
The biggest knock against Skyworks is the fact that the company is a semiconductor. And as technology investors know, the semiconductor industry has been filled with weaker demand warnings. Therefore if Skyworks is able to present a strong earnings report and conference call investors will see the share price take off. One of the most important questions analysts should ask Skyworks during the conference call is the extent of the relationship with Apple. If Skyworks is one of the leading suppliers for Apple, the share price deserves to be much higher.
Because Skyworks is an Apple supplier, the company may not effect other semiconductor stocks. For instance, if Skyworks reports strong revenue and guidance, this will not necessarily mean the rest of the semiconductor industry will report similar results. With that said, by combining Skyworks results with Google, Microsoft, and Intel the broader market will trend substantially upwards. If this does indeed happen, it is not out of the question to see other semiconductor companies get pulled along as well in a bullish environment.
With these four companies reporting in the same evening, investors and traders will have their hands full after hours on Thursday as well as Friday. Any number of combinations can occur that cause the broader indexes to stay put, but if these companies report strong earnings we will see a fairly big jump on Friday. Also since Google, Microsoft, and Intel are market leaders the broader indexes will follow these three higher after strong fourth quarter results.
Assuming these four companies beat expectations and give strong guidance, I expect this momentum to carry the broader U.S. indexes through February into March. Of course, a big part of this momentum will be based upon other technology companies reporting equally strong numbers. The single biggest possible set back is the Greek debt deal. I will not dive into this concept in depth, but if creditors do indeed take a 68% hair cut, these is a 1:2 chance the markets in the U.S. will react initially. Any serious loss of money will be felt at some point, but for the time being it is best to focus on profits in the near term, especially because there will be plenty of profits for the taking.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.