Will Earnings Season Prompt a Resurr-tech-tion?

Techpocalypse. Chip-wreck. Do these terms sound familiar?

What about the best month of performance in tech stocks all year?

It’s hard to imagine with the negative press surrounding the sector, trade uncertainties weighing on component suppliers and the general bouts of doom & gloom that has assailed markets through much of 2019, but it’s true. June has shown that the technology market leaders can again...well, lead the market. 

The tech-heavy NASDAQ composite gained more than 8% over the course of the month, while the Dow and S&P 500 came in a full point below that.

The evidence of tech resurrection is even stronger when looking at the one-month chart for tech-centric industry ETFs like the Direxion Daily Technology Bull 3X Shares ETF, Direxion Daily Semiconductor Bull 3X Shares ETF  and the Direxion Daily Robotics, Artificial Intelligence & Automation Index Bull 3X Shares ETF, which each finishing the month up by more than 26%.

Chart: Yahoo Finance; Data as of 6/27/19. Past performance is not indicative of future results. Investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost.  Current performance may be lower or higher than the performance data quoted. For standardized performance, click here

Of course, tech’s shift from pariah to darling, and vice versa, has happened several times over the course of the past year. With earnings season right around the corner, traders will be faced with the decision about whether tech has room to run in the event of a swatch of earnings beats, or if negative surprises will drive stocks back down to the lows many of them found during May’s brutal market.

To get a sense of the strength of the tech industry, let’s look at how some of their key constituents are positioned heading into the second-quarter reporting season. Hopefully, sentiment surrounding the upcoming tech earnings will inform traders whether to follow or fade the recent surge.

Blue-Chip Tech

As you might expect given NASDAQ’s resurgence, many of the index’s largest components have had a similarly strong month. Microsoft and Intel both gained 8% or more on the month, while Apple surged more than 14% after holding its developer conference early in the month.

Earnings-wise, many of these companies have warned of the impact the ongoing U.S.-China trade war will have on their sales and revenue growth. Both Apple and Intel have released guidance that suggests their year-over-year revenue could be relatively flat as they prepare to report earnings late in July. Even delivering on these diminished expectations could drive investor interest into the inversely leveraged Direxion Daily Technology Bear 3X Shares ETF TECS.

Semiconductors

Speaking of tariffs, perhaps one of the most surprising beneficiaries of June’s tech surge has been semiconductor companies, which have long bemoaned the devastating impact U.S.-China tariffs would have on their sales. Despite this, fund flow in the bearish Direxion Daily Semiconductor Bear 3X Shares SOXS has been net negative throughout May and June by -$36.38 million.

This is surprising, given industry leader Nvidia Corporation NVDA is trading down more than 24% year-to-date while apple-supplier Broadcom Inc. AVGO has already reported revenue below expectations for its second quarter and cut its FY19 guidance by $2 billion. Broadcom’s report caused also caused sympathy reaction throughout the industry in stocks like Advanced Micro Devices, Inc. AMD Qualcomm,QCOM, which report mid-July. However, a positive report from Micron Technology Inc. MU later in the month bolstered others in the space.

Automation and A.I.

Finally, automation represents one of the more internationally diverse areas of technology equity. However, trade concerns and signs of global economic slowdown seemingly hasn’t had an outsized effect on the area. Take Japanese firms Fanuc Ltd. FANUY and Mitsubishi Electric MIELY; despite sustained contraction in the nation’s Producer Manufacturing Index throughout 2019, both companies are higher on the year by more than 20%.

The same can’t be said for the domestic Intuitive Surgical, Inc. ISRG or the Swiss ABB Ltd. ABB, which are up only 8.8% and 5.5% respectively. ABB remains near multi-year lows thanks to a string of poorly received quarterly reports. For its part, Intuitive fell hard in April, 16.6%, following a disappointing first-quarter report and continued lower during May’s sell-off. However, June has seen the stock roar back more than 12%, putting it in the middle of its 52-week rage.

Direxion Investments is a content partner of Benzinga