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A big week for Apple and Amazon is buoying tech stocks, pushing the Nasdaq Composite back to the lofty levels it reached in late August. That may raise eyebrows, but good luck finding true skeptics.
What’s happening: Apple is due to unveil its latest iPhones on Tuesday at a highly-anticipated event, while Amazon has launched its flagship Prime Day sale, marking an early start to the holiday shopping season.
Expectations for the Apple event drove the company’s shares up more than 6% on Monday, and they’re up another 2% in premarket trading. Amazon’s stock jumped almost 5% Monday.
Apple’s agenda: Investors expect the company to announce the launch of a long-rumored upgrade that would allow the iPhone to connect to 5G wireless networks.
Some analysts expect the 5G iPhone to generate a “supercycle” of device upgrades, potentially prompting more people than usual to buy the new device.
“Consumers looking to buy a 5G iPhone will have no choice but to pay up and buy it directly through Apple over the next two to three years,” said CFRA Research analyst Angelo Zino.
There are risks, however, given that the phone may top $1,100. While the company will sell millions of devices — the smartphone is, after all, increasingly indispensable — it’s a big ask at a bad time for financially strapped consumers, my CNN Business colleague Rachel Metz notes.
Watch this space: Apple has only traded higher on four out of 15 iPhone announcement days, according to Bespoke Investment Group. Even if there is some selling pressure on Tuesday, however, it’s unlikely to wipe out the huge Monday gain.
Amazon, meanwhile, is poised to get a fourth-quarter boost from its sales this week. Prime Day makes up less than 2% of the company’s annual sales, but it’s seen as crucial to building customer loyalty and hooking new shoppers. The event is taking place months later than usual due to the pandemic.
Investor insight: You’d be hard pressed to find investors betting against tech names like Apple and Amazon right now, which have managed to bring in heaps of revenue during the pandemic. Traders see these companies as both drivers of growth and defensive picks because they’re less affected by social distancing and likely to benefit from the long-term shift to online services.
See here: Nearly 90% of analysts recommend buying Apple stock or have issued a neutral rating, according to Refinitiv. For Amazon, the percentage climbs to 98%.
Earnings season begins
The US economy still has a long way to go before it achieves a full recovery from the pandemic. But you wouldn’t know it from the mood ahead of corporate earnings season.
The latest: How earnings play with investors is a matter of expectations — and analysts are confident that companies can beat Wall Street estimates for the July to September period, when the economy was in reopening mode.
If that prediction comes true, and there are signs that the economic situation is improving, stocks are likely to get a boost.
“We probably will have another decline in profits for third quarter 2020, though potentially only about half as big as last quarter,” Jeffrey Buchbinder and Ryan Detrick of LPL Research said in a recent note to clients. They expect Corporate America to return to earnings growth in early 2021.
Remember: Even if investors have been comfortable writing off 2020 earnings, visibility on future profits or losses remains limited. More than one in four S&P 500 companies still isn’t providing earnings guidance for either 2020 or 2021, according to FactSet analyst John Butters.
Coming up: The main event this week is earnings from the biggest US banks. Investors will be watching closely to see if loan losses are ticking up due to ongoing hardship for many businesses and consumers.
However, Fitch Ratings has warned there may not be clarity on this front until at least next year, given that many banks have allowed customers to pause debt repayments and stimulus money helped many Americans get through the spring and summer.
Disney puts streaming at the center of its media empire
Disney is making it very clear that it sees streaming as central to the future of entertainment, my CNN Business colleague Frank Pallotta reports.
The company announced a major reorganization of its media and entertainment business on Monday that will allow it to prioritize Disney+, which has enjoyed rapid growth since it launched less than a year ago.
Disney+ has been one bright spot for the company during the pandemic, which has delayed Disney’s films, stalled productions and shuttered parks and resorts for months.
Details, details: The new structure will help Disney to put its creative muscle behind the development and production of streaming content, and could make it easier for prestige content to appear on the platform, and not just in theaters or on television.
The changes “will allow us to be more effective and nimble in making the content consumers want most, delivered in the way they prefer to consume it,” Disney said in a statement.
Investor insight: Shares of Disney, which have dropped nearly 14% this year, are up more than 4% in premarket trading. But the announcement is more bad news for movie theater chains like AMC and Regal owner Cineworld, which have been hit hard as the blockbuster pipeline runs dry.
Earnings season kicks off as JPMorgan Chase, Citigroup, BlackRock, Johnson & Johnson and Delta Air Lines post results before US markets open.
- US inflation data for September posts at 8:30 a.m. ET.
- Apple’s big event kicks off at 1 p.m. ET.
Coming tomorrow: Bank earnings continue with Bank of America, Goldman Sachs and Wells Fargo.