Investors keen on predicting the S&P 500’s trajectory for the next month are advised to closely monitor three pivotal days this week. Between Tuesday and Thursday, five prominent Big Tech companies, collectively valued at over $10 trillion, will release their earnings reports: Microsoft Corp., Alphabet Inc., Meta Platforms Inc., Amazon.com Inc., and Apple Inc. Concurrently, the Federal Reserve will announce its decision on interest rates, with Chair Jerome Powell expected to share insights on the future outlook.
The significance of these events cannot be overstated, as the S&P 500 continues its ascent into record territory, fueled by optimism about central bankers easing monetary policies and the increasing value of tech giants like Microsoft.
According to Chris Zaccarelli, Chief Investment Officer at Independent Advisor Alliance, “Tech disproportionately moved the market last year, and big tech continues to have the biggest earnings power, so the results will be crucial for the markets.”
Despite a shaky start to the year, the S&P 500 is on track for a third consecutive monthly advance, gaining over 18% since late October. The rally is spearheaded by megacaps such as Microsoft, Alphabet, Amazon.com, Nvidia, and Meta Platforms, responsible for a significant portion of last year’s 24% index gain.
Microsoft and Alphabet, at the forefront of the AI boom due to substantial investments, will kick off earnings on Tuesday. Investors anticipate AI advancements to boost profit and sales growth for these companies.
The focus shifts to the Fed’s January meeting on Wednesday, where interest rates are expected to remain steady. Traders eagerly await Powell’s comments on the timing of easing, considering recent data indicating receding inflation and robust US economic growth.
Thursday sees Apple, Amazon, and Meta Platforms reporting, with Apple facing concerns about revenue growth but expected to announce its first sales expansion in four quarters.
While the Magnificent Seven stocks dominate the market, concerns about overexposure to a few stocks persist, potentially leading to market turmoil if quarterly results disappoint. Bank of America’s survey indicates these stocks as the most crowded trade among fund managers.
Despite worries, traders are not rushing to hedge against declines, as indicated by options market data. Projected price swings for Apple and Meta Platforms are near multi-year lows, reflecting minimal expected post-earnings volatility.
Tesla’s recent experience serves as a cautionary tale, with a substantial drop following lower-than-expected earnings and a cautious outlook. Microsoft’s rise to the world’s most valuable company with a market value above $3 trillion raises concerns about the stock’s expensive valuation.
According to Jason Benowitz, Senior Portfolio Manager at CI Roosevelt, the megacap trade is undoubtedly crowded, but the stocks may continue to rally amid slowing economic growth and accommodating financial conditions. “There’s a good reason for the crowded trade,” he said. “The environment is good for them.”
