The Next Hurdle for Tech Stocks Could Be Weak Earnings Outlooks

Investors hoping that third quarter earnings will be strong enough to reverse this year’s steady selloff in technology stocks should brace for the prospect of weak company outlooks causing further pain.

That’s the view from pessimists who say the mini-rally in the Nasdaq 100 Index that kicked off this week will peter out. Headwinds including higher interest rates, a strong dollar, and slower economic growth are likely to result in cautious commentary from companies as they roll out results over the next month.

The Nasdaq 100 Index was little changed on Thursday.

That dynamic applies to stocks as a whole, but its especially a problem for tech shares, because earnings for the industry are now forecast to decline in the third quarter, unlike the rest of the market.

While third quarter earnings may beat already-lowered estimates, as they usually do, that will be no consolation if analysts have to take an ax to 2022 and 2023 estimates again. And it will undermine the argument that the year-to-date rout has generated some bargains.