U.S. markets and stock ETFs stumbled Tuesday after shares of Google’s parent company, Alphabet (NasdaqGS: GOOGL), revealed its weakest revenue growth in years.
On Tuesday, the Invesco QQQ Trust (NASDAQ: QQQ) fell 0.7%, SPDR Dow Jones Industrial Average ETF (NYSEArca: DIA) was up 0.1% and SPDR S&P 500 ETF (NYSEArca: SPY) was unchanged.
Alphabet announced late Monday its slowest quarter revenue growth since 2015, fueling concerns over the technology segment’s ability to maintain growth and profit margins heading into the late stages of the economic cycle, the Wall Street Journal reports.
GOOGL shares plunged 8.1% in response to the revelations and was on track for its biggest single daily drop in over seven years.
“This quarter will no doubt result in a reset to forward expectations,” Mark Kelley, an Internet analyst at Nomura Instinet, wrote in note, adding stocks are expected to trade sideways while investors and others determine whether the slowdown in growth will linger.
10 ETFs that maintain significant exposure to Alphabet Inc (GOOG):
|VOX||Vanguard Communication Services ETF||0.10%||12.24%|
|FCOM||Fidelity MSCI Communication Services Index ETF||0.08%||12.14%|
|XLC||Communication Services Select Sector SPDR Fund||0.13%||12.03%|
|DUSA||Davis Select U.S. Equity ETF||0.63%||10.62%|
|IXP||iShares Global Telecom ETF||0.47%||10.50%|
|PNQI||Invesco NASDAQ Internet ETF||0.60%||8.39%|
|TTTN||TigerShares China-U.S. Internet Titans ETF||0.59%||8.29%|
|TMFC||Motley Fool 100 Index ETF||0.50%||7.68%|
|FNG||AdvisorShares New Tech and Media ETF||0.86%||7.53%|
|IVFGC||Ivy Focused Growth NextShares||0.78%||7.52%|
The negative outlook spilled over to other tech names, including Apple (NasdaqGS: AAPL), which is scheduled to report earnings after the market close on Tuesday, along with some chip makers and software firms, including Salesforce.com (NYSE: CRM).
“People are definitely taking some profits off names like Apple, Google. There could be a little ‘peaking’ mentality here considering how indexes are at record levels, people tend to get a bit cautious,” Jeremy Bryan, portfolio manager at Gradient Investments, told Reuters.
Nevertheless, analysts pointed out that the earnings season has helped lift markets overall, with recent positive supporters like McDonald’s (NYSE: MCD) and Pfizer (NYSE: PFE). The better-than-expected first quarter earnings season has put the S&P 500 on pace to report a smaller-than-expected contraction in profit growth. Profit growth is now projected to contract 1.7% from a year earlier, compared to the roughly 4% analysts previously expected in early April, with over 200 companies in the broad index still due to report results.
“Large-cap companies have generally reported better-than-expected numbers but not the kind that would accelerate a rally,” Bryan added.
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