Earnings from some of the biggest US technology companies will take center stage next week, giving investors a chance to re-evaluate the sector's health.
Big tech names set to report next week include Intel Corp and Yahoo Inc on Tuesday; eBay Inc on Wednesday and Google Inc on Thursday.
The tech sector has the highest projected earnings growth rate among the 10 S&P sectors for the second quarter at 12.3 per cent, its best quarter since the first quarter of 2012. This forecast marks a sharp rebound from a drop of 3.2 per cent just a year ago, according to a Thomson Reuters poll.
Goldman Sachs analysts wrote in a note that the information technology sector "appears to be the most undervalued sector", giving investors more reasons to be bullish on tech stocks.
The implied earnings-per-share growth for the tech sector has been 5.4 percentage points above the S&P 500 on average over the past 10 years, but it is now just 1.0 percentage point above the benchmark index, according to the Goldman Sachs note.
While the Dow Jones industrial average and the S&P 500 have hit record highs recently, the tech-heavy Nasdaq is still more than 700 points away from its all-time intraday high on March 10, 2000, suggesting to some investors that the sector may have more room to the upside.
The tech sector's earnings are "going to certainly be important because the market started to gain momentum as economic data got better", said Quincy Krosby, market strategist at Prudential Financial, which is based in Newark, New Jersey.
"We want to hear good solid numbers and if we get that from tech names, it will help."
Nine of the 13 sub-industries in the tech sector are expected to report higher earnings than a year ago, with semiconductors and semiconductor equipment having the highest growth rates within the sector, according to Thomson Reuters data.
Big banks in the spotlight
Among the 10 S&P 500 sectors, financials have the worst earnings forecast with a decline of 3.5 per cent from a year ago, according to Thomson Reuters data. Nine of the sector's 21 sub-industries are expected to post a drop in earnings.
Earnings from some of major banks next week will include JPMorgan Chase & Co and Goldman Sachs Group Inc on Tuesday; Bank of America Corp on Wednesday and Morgan Stanley on Thursday.
Analysts are expecting subdued results because a slowdown in revenue from mortgage refinancing and trading is offsetting gains from other areas like investment banking and money management. Higher legal, regulatory and compliance costs are also weighing on results.
Wells Fargo & Co on Friday underscored some of those problems as the largest US mortgage lender reported a 39 per cent decline in revenue from that business.
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