Amid the chaotic news, Wall Street strategists are reminding investors that corporate profits remain paramount to stock market gains.
Eric Wallerstein, chief market strategist at Yardeni Research, told Yahoo Finance that unless there are unexpected changes in economic conditions, profits are likely to be “in control.”
Several large tech companies are scheduled to report their earnings in the coming days, bringing the total to 169 S&P 500 (^GSPC) companies. Updates on inflation and the labor market are also on the horizon.
These announcements come ahead of another important week, with the presidential election and the Federal Reserve’s next interest rate decision both set to greet investors during the upcoming trading session.
Venu Krishna, head of U.S. equity strategy at Barclays, echoed Wallerstein, saying that “a lot depends” on the future earnings of big tech companies.
While upcoming economic data and the Fed’s response to it next week will help shape how investors view the interest rate environment over the next year, the earnings report provides a clear picture for the S&P 500 as a whole. will provide information.
Krishna said many people are talking about expanding earnings growth beyond Apple (AAPL), Alphabet (GOOGL, GOOG), Microsoft (MSFT), Amazon (AMZN), Meta (META), and NVIDIA (NVDA). However, analysts emphasized that the scope for profit growth is narrowing. The forecasts for the other 494 companies in the S&P 500 are similar. That’s because Big Tech’s earnings forecasts haven’t been cut as much, putting more pressure on the market’s biggest companies to deliver earnings growth.
FactSet recently found that Big Tech companies and the Magnificent Seven stocks, including Tesla (TSLA), are expected to see their profits increase 18.1% year-over-year this quarter, while 493 other companies in the S&P 500 will see profits increase. He pointed out that this is expected. Growth is only 0.1%.
So far, Tesla has performed that role by beating analysts’ earnings per share estimates by nearly 21%. On Tuesday night, Alphabet also reported better-than-expected EPS, beating Wall Street expectations by nearly 16%. Results for Microsoft and Meta are expected to be announced on Wednesday, followed by Alphabet and Apple on Thursday.
But, says Krishna, “if all you do is meet expectations, that’s not good.” “A surprise size in the 5% to 6% range is reasonable. Anything less would be disappointing. Anything more would be amazing. They would regain complete control relative to the rest of the market. ”
The Microsoft logo is on display at Mobile World Congress on February 26, 2024 in Barcelona, Spain. (Charlie Perez/NurPhoto via Getty Images) · NurPhoto via Getty Images
Overall, this earnings season has brought big rewards to companies that beat analyst expectations on both revenue and profits. Bank of America’s equity and quantitative strategy team said in a note to clients on Monday that companies that beat Wall Street’s expectations for both sales and profits saw their stock prices rise an average of 2.48% the next day, far above average. I wrote that it exceeded that of the previous year. A move of 1.48%.
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