Tech Sector Downgraded At Morgan Stanley, Firm Cuts Apple Exposure In Half

• Shares of Apple Inc. (NASDAQ: AAPL), LinkedIn Corp (NYSE: LNKD), Palo Alto Networks Inc (NYSE: PANW) and Alphabet Inc (NASDAQ: GOOGL) have been under significant pressure over the past one month.
• Morgan Stanley’s Adam S. Parker downgraded the technology sector from Market-Weight to Underweight.
• Morgan Stanley had reduced exposure to technology, while lowering exposure to Apple and removing LinkedIn and Palo Alto, Parker stated.

The upcoming earnings season is likely to be “a catalyst to calm fears,” analyst Adam Parker said, citing that there have been few negative pre-releases, the US consumer has been relatively robust, and there has been a lack of large headwinds from macro factors. He added, “A lowered bar for earnings should be cleared.”

The earnings expectations for Q4 2015 have been lowered yet again. Given the reduced expectations, the reported results could show modest upside, Parker commented.

In the report Morgan Stanley noted, “There really haven't been any meaningful negative pre-releases, a sign that companies aren't having difficulty meeting the bar set in October.” There is unlikely to be large currency, oil, or rates headwinds that would sequentially impact the quarter.

“The US consumer is in pretty good shape, with a warm December for a large percentage of the population keeping heating bills low and substantial savings at the pump,” Parker mentioned.

While recent price action has fueled fears of an upcoming earnings recession, there is unlikely to be any meaningful earnings slowdown.

“With the volatile start, we are also making several portfolio changes,” Parker wrote. He added that Morgan Stanley had reduced exposure to technology by 3 percent, while lowering their weight in Apple from 4 percent to 2 percent, and removing their 1 percent positions in LinkedIn and Palo Alto. Morgan Stanley also added 1 percent to their position in Google.

“We are recommending that investors overweight financials and consumer discretionary and underweight technology, consumer staples, and energy,” Parker stated.