Preview: Technology Shares Will Drive the Market

Alex Dumortier, CFA, The Motley Fool
Updated

After a third consecutive week of stock market gains, the DowJones Industrial Average and the broader S&P 500 Index both closed at five-year highs on Friday. Conversely, the VIX registered its lowest closing value in more than five and a half years. The VIX, which is derived from option prices on the S&P 500, is a measure of investors' expectations for stock market volatility over the next 30 days.

A big week for the technology sector
Next week will be short in terms of trading days, with the markets closed in observance of Martin Luther King Jr. Day. But don't let that fool you, as it marks one of the peaks of the current earnings season, with no fewer than 11 Dow components and 80 S&P 500 companies expected to report their results for the fourth quarter. These are the Dow components that are on tap for next week:

  • Tuesday: DuPont, Johnson & Johnson, IBM, Travelers, Verizon Communications

  • Wednesday: McDonald's, United Technologies

  • Thursday: 3M, AT&T, Microsoft

  • Friday: Procter & Gamble

One sector to track carefully next week is technology, as the four largest technology companies -- representing more than two-fifths of the sector's market weighting in the S&P 500 -- are reporting. (In addition to IBM and Microsoft, Google and Apple are also on tap for Tuesday and Wednesday, respectively.) Technology is the largest sector in the S&P 500; these four stocks add up to more than 8% of the entire index.


Investors have de-rated tech shares recently, but positive results and outlooks from the executives at these companies could put an end to that trend, particularly when one considers that, on the basis of earnings estimates for the next 12 months, only financials and energy now sport a lower price-to-earnings multiple than technology's 12.5. Furthermore, relative to the five- and 10-year P/E multiple averages, Technology is cheaper than all other sectors.

There's no doubt that Apple is at the center of technology's largest revolution ever and that longtime shareholders have been handsomely rewarded, with more than 1,000% gains. However, there is a debate raging as to whether Apple remains a buy. The Motley Fool's senior technology analyst and managing bureau chief, Eric Bleeker, is prepared to fill you in on both reasons to buy and reasons to sell Apple, and what opportunities are left for the company (and more importantly, your portfolio) going forward. To get instant access to his latest thinking on Apple, simply click here now.

The article Preview: Technology Shares Will Drive the Market originally appeared on Fool.com.

Fool contributor Alex Dumortier, CFA has no position in any stocks mentioned. The Motley Fool recommends 3M, Johnson & Johnson, McDonald's, and Procter & Gamble and owns shares of IBM, Johnson & Johnson, McDonald's, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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