Can Big Tech Earnings Drag Markets From The Recent Rut?
2022.04.26 18:51
This week is big for Wall Street, a plethora of earnings reports are expected, with investors particularly focused on Big Tech names like Alphabet (NASDAQ:GOOGL), Microsoft (NASDAQ:MSFT), Amazon (NASDAQ:AMZN), Apple (NASDAQ:AAPL), and Meta Platforms (NASDAQ:FB).
The big question is if positive earnings could turn around the recent market rut, which has seen Big Tech stocks lose considerable chunks of their market cap.
Big Tech losses.
Today’s after-hour earning reports include Alphabet and Microsoft, two companies with very different expectations. Microsoft is forecasted to post double-digit EPS growth year-on-year, while Alphabet is expected to announce a decline YOY.
The differentiation in estimates explains MSFT’s resilience in holding the long-term support level, while GOOG’s price action has failed to hold its long-term support.
Microsoft Weekly Chart.
Alphabet (GOOG) Weekly Chart.
As analysts tempered expectations early in the year and the YOY comparisons are unflattering, it’s no wonder that even companies beating these expectations are experiencing downside moves based on poor outlook.
Many, rightfully, view this week’s earnings as a critical juncture for equities, with a third of S&P 500 and a half of Dow Jones companies set to report—it’s the point which fundamental bottom-up research will either confirm or disprove what appears to be a challenging macro backdrop.
As the Federal Reserve’s hawkishness generates questions about whether rate hikes would damage the economy to temper inflation, bullish equity investors are banking on a solid corporate earnings outlook. This is a tricky environment for equity investors. Any weakness in profit growth would spook the markets, essentially an asymmetric return where negative results are penalized more than positive results are rewarded.
Bottom line, investors should focus on utilizing this week’s big tech reports as a gauge for the long-term corporate earnings environment irrespective if they’re invested in the sector or not. Big tech represents, in value, a fifth of the weight of the S&P 500, making their earnings outlook crucial for the overall economy, and should their growth outlook slow, and a recession appears to be just around the corner for the entirety of the US market.
