Market Insights

Major Internet stocks are running as investors prepare for a crowd of earnings.

The First Trust Dow Jones Internet ETF (FDN) is challenging its old highs from 2018, hours before Facebook (FB) and PayPal (PYPL) announce quarterly results. Other big names like Amazon.com (AMZN) and Alphabet (GOOGL) are also due soon.

FDN’s 2 percent gain in the last week is more than twice the performance of the broader S&P 500 index over the same period. It’s also helped push the technology-heavy Nasdaq-100 index to new record highs.

A trio of factors seems to be drawing money back to Internet stocks. First, they’ve benefited from investors returning to the broader market after last year’s big crash.

Second, Nirvana-like conditions favor stocks like FB and AMZN. Low interest rates make it easier to pay higher price-to-earnings multiples, while a steady economy keeps investors looking for growth stories.

Earnings Onslaught Underway

But the third catalyst is the big one: earnings.

Some companies in FDN already reported. eBay (EBAY), for instance, jumped more than 5 percent today after profit and sales cruised past estimates. The online-auction company also made some key changes to its platform, like promoting individual merchants, in a bid to fight off competition from GOOGL and Walmart (WMT).

Twitter (TWTR) ripped higher yesterday. Earnings and revenue beat, but the real news was a surprising growth in monthly active users. Have its worst traffic declines from purging fake accounts passed?

Netflix (NFLX) had a so-so report last week. The overall numbers beat consensus but investors were less-than-thrilled with its tepid subscriber growth. They’re also nervous about the competitive landscape as Walt Disney (DIS) jumps into the streaming-video market.

FB has been another big mover, appreciating almost 10 percent in the last month. The social-media giant was one of the leaders to the downside last year as CEO Mark Zuckerberg responded to concerns about privacy and content-policing. It also showed signs of a real turnaround last quarter as advertisers begin using its new Stories format. FB’s numbers will definitely get a lot of interest tonight!

Key Holdings in FDN

Here’s a breakdown of the top five holdings in the First Trust fund:

1. Amazon.com (AMZN): The leader in e-commerce is also a major player in the cloud-computing space. Keep an eye on its AWS business when earnings come out tomorrow afternoon.
2. Facebook (FB): The social-media giant is back near a large bearish price gap from July. Chart watchers may watch that zone after this afternoon’s results.
3. Netflix (NFLX): The streaming-video giant hasn’t made a new 52-week high in 10 months. It’s been rangebound between about $340 and $380.
4. PayPal (PYPL): Sellers hit the payments company after revenue missed in January, but then it soon broke out to new highs. The narrative is increasingly focused on the mobile Venmo service.
5. Alphabet (GOOG & GOOGL): The lumbering search giant more or less tracks the Nasdaq-100 these days. Can CEO Sundar Pichai start monetizing other businesses like YouTube? That could be the big question on investors’ minds when numbers hit on Monday night.

This post is part of our regular “ETF of the week” series. It focuses on exchange-traded funds with interesting news or price changes.