Tech Giants' Earnings and Fed Meeting: A Pivotal Week for Wall Street

Spooked stock market faces tech earnings minefield, Fed meeting

Rattled investors are bracing for earnings from the market's biggest tech companies, a Federal Reserve policy meeting and closely watched employment data in a week that could determine the near-term trajectory of US stocks following a bout of severe turbulence. A months-long rally in massive tech stocks hit a wall in the second half of July, culminating in a selloff that saw the S&P 500 and Nasdaq Composite Index notch their biggest one-day losses since 2022 on Wednesday after disappointing earnings from Tesla and Google-parent Alphabet. More volatility could be ahead. Next week's results from Microsoft, Apple, Amazon.com and Facebook-parent Meta Platforms could further test investors' tolerance of potential earnings shortfalls from tech titans. The blistering rallies in the world's biggest tech companies this year pushed markets higher, but have sparked concerns about stretched valuations. Though the S&P 500 is still only about 5% below its all-time high and is up nearly 14% this year, some investors worry that Wall Street may have become too optimistic about earnings growth, leaving stocks vulnerable if companies are unable to meet expectations in coming months. Investors also will be closely watching comments following the end of the Federal Reserve's monetary policy meeting on Wednesday for clues on whether officials are set to deliver interest rate cuts, which market participants widely expect to begin in September. Employment data at the end of the week, including the closely watched monthly jobs report, could indicate if a nascent downshift in the labor market has become more severe. "This is a critical time for the markets," said Bryant VanCronkhite, a senior portfolio manager at Allspring. "You're having people start to question why they are paying so much for these AI businesses at the same time the market fears that the Fed will miss its chance to secure a soft landing, and it's causing a violent reaction." Recent weeks have shown signs of a rotation out of the high-flying tech leaders and into market sectors that have languished for much of the year, including small caps and value stocks such as financials. The Russell 1000 Value index is up more than 3% for the month-to-date while the Russell 1000 Growth index is down nearly 3%. The small-cap-focused Russell 2000 is up nearly 9% this month, while the S&P 500 has lost more than 1%. Even strong earnings may not be enough to get the broad market out of its recent malaise, at least in the near term, said Keith Lerner, chief market strategist at Truist. "The market is going to take direction based on the fact that these stocks have pulled back," he said. "My thinking is that tech came down so hard, even if you get a bounce from these names due to earnings you will have people itching to sell into any gains." And any signs that the Fed is seeing worse-than-expected deterioration of the economy could also unnerve investors, disrupting the narrative of cooling inflation but still-resilient growth that has supported markets in recent months. "We think they are going to stay with the script that they will be data dependent but the data has not been going in a straight line," said Matt Peron, global head of solutions at Janus Henderson Investors. Conflicting signs in the economy have included faster-than-expected GDP growth in the second quarter alongside declining manufacturing activity. Markets are currently pricing in a near-certainty that the Fed will begin cutting interest rates at its September meeting, and expect 66 basis points in total cuts by the end of the year, according to CME's FedWatch Tool. The employment data at the end of the week could sway those odds if it shows that the economy has been slowing faster than expected, or conversely, if a picture of rebounding growth emerges. Still, the recent selloff could be seen as a healthy part of a bull market that burns off excess froth, said Charles Lemonides, head of hedge fund ValueWorks LLC. "I think the longer-term story is that growth names will carry us through another market high somewhere down the road," he said.

Big tech earnings arrive with Nasdaq on brink of correction

In a week that also brings a Federal Reserve interest-rate decision, investors will focus primarily on results from Microsoft on Tuesday, followed by Meta Platforms, Apple and Amazon over the next two days.The violent rotation out of Big Tech has dragged the Nasdaq 100 Index down 8% in just over two weeks, leaving it on the cusp of a correction. Whether it can avoid that dubious milestone will likely come down to earnings from a quartet of companies worth nearly $10 trillion combined. In a week that also brings a Federal Reserve interest-rate decision, investors will focus primarily on results from Microsoft on Tuesday, followed by Meta Platforms, Apple and Amazon over the next two days. The stakes were already high after a torrid first-half rally for Big Tech left the biggest companies with fat share-price gains and stretched valuations. They've become downright critical after Alphabet's results last week raised concern that spending on artificial intelligence has gotten too rich relative to near-term returns. "These earnings are really important," said Michael O'Rourke, chief market strategist at Jonestrading. "If you can't beat expectations then I think the interpretation is that AI is not delivering the way people hoped." The results will land in a market roiled by one of the quickest and sharpest rotations in years. Investors finally turned cautious about companies at the forefront of AI after ignoring for months warnings that their run was overextended. They've sold the Nasdaq 100 to the tune of $2.6 trillion, and plowed into stocks that had long been laggards, including small companies and financial and industrial firms.

Earnings from tech giants betting on AI could push the Nasdaq 100 over the edge or halt the violent market rotation

In a week that also brings a Federal Reserve interest-rate decision, investors will focus primarily on results from Microsoft Corp. on Tuesday, followed by Meta Platforms Inc., Apple Inc. and Amazon.com Inc. over the next two days. The stakes were already high after a torrid first-half rally for Big Tech left the biggest companies with fat share-price gains and stretched valuations. They've become downright critical after Alphabet Inc.'s results last week raised concern that spending on artificial intelligence has gotten too rich relative to near-term returns. "These earnings are really important," said Michael O'Rourke, chief market strategist at Jonestrading. "If you can't beat expectations then I think the interpretation is that AI is not delivering the way people hoped." The results will land in a market roiled by one of the quickest and sharpest rotations in years. Investors finally turned cautious about companies at the forefront of AI after ignoring for months warnings that their run was overextended. They've sold the Nasdaq 100 to the tune of $2.6 trillion, and plowed into stocks that had long been laggards, including small companies and financial and industrial firms. The index recovered slightly on Friday, posting a 1% gain, but not nearly enough to make up for losses earlier in the week. The rotation into cyclical pockets of the market began in earnest after a reading on June prices showed cooling inflation, stoking bets the Fed will cut interest rates as soon as September. The Russell 2000 has jumped 10% since then, while financial and industrial companies in the S&P 500 are up more than 3.5%. Investors will get a better read on the prospects for any cuts when the Fed releases a policy statement Wednesday and Chair Jerome Powell speaks. During the shift, traders have been bidding up options on the Invesco QQQ Trust Series 1 ETF that tracks the Nasdaq 100 to protect against a further slide, pushing up the premium for bearish puts to the highest in eight months. The Cboe Volatility Index popped above 18 this week for the first time since April, while a similar measure of turbulence on the Nasdaq 100 touched the highest since October -- the last time the index was in a correction. "This is what happens when you have such a small amount of breadth in the market and everyone depending on the same few stocks," said Michael Matousek, head trader at US Global Investors Inc. The first test will be Microsoft. The software giant has been integrating AI services into its suite of software products and has spent heavily to build out data-center capacity. In Microsoft's fiscal third quarter that ended in March, the company plowed $11 billion into capital expenditures. That figure is projected to rise to more than $13 billion in its fiscal fourth quarter. Meta Platforms, which reports on Wednesday, and Amazon, which reports on Thursday, have also been big spenders and investors will be looking for signs that AI is moving the needle for revenue. Apple shares have rallied 32% from an April low on optimism about the company's plans to integrate AI services into its iPhones. Investors will be looking for additional details when it reports on Thursday as well. "There are growing concerns that the return on investment from heavy AI spending is further out or not as lucrative as believed, and that is rippling through the whole semiconductor chain and all AI-related stocks," said James Abate, chief investment officer at Centre Asset Management. The carnage is mounting among some of the highest flying AI stocks. Nvidia, which is at the forefront of that industry, has fallen 17% from a record high on June 18 when it surpassed Microsoft and Apple to briefly become the most valuable company in the world. Dell Technologies Inc., which makes servers used in data centers, has tumbled 37% from a peak in May. Rival Super Micro Computer Inc. is down 40% since March. The six biggest US technology stocks accounted for most of the S&P 500's 14% first-half advance. The cap-weighted index beat its equal-weight cousin by the most since 1999. Valuations soared, with the S&P 500's information technology index earlier this month hitting its highest price-to-projected earnings ratio since 2002. "Big tech was priced for perfection, and it has accounted for nearly all the market's gains, which just underlines the group's vulnerability," Abate said.

Wall St Week Ahead: Spooked US stock market faces tech earnings minefield, Fed meeting

Traders work at the New York Stock Exchange. A months-long rally in massive tech stocks hit a wall in the second half of July,. -- AFP Rattled investors are bracing for earnings from the market's biggest tech companies, a Federal Reserve policy meeting and closely watched employment data in a week that could determine the near-term trajectory of US stocks following a bout of severe turbulence. A months-long rally in massive tech stocks hit a wall in the second half of July, culminating in a selloff that saw the S&P 500 and Nasdaq Composite Index notch their biggest one-day losses since 2022 on Wednesday after disappointing earnings from Tesla and Google-parent Alphabet. More volatility could be ahead. Next week's results from Microsoft, Apple, Amazon.com and Facebook-parent Meta Platforms could further test investors' tolerance of potential earnings shortfalls from tech titans. The blistering rallies in the world's biggest tech companies this year pushed markets higher, but have sparked concerns about stretched valuations. Though the S&P 500 is still only about 5 per cent below its all-time high and is up nearly 14 per cent this year, some investors worry that Wall Street may have become too optimistic about earnings growth, leaving stocks vulnerable if companies are unable to meet expectations in coming months. Investors also will be closely watching comments following the end of the Federal Reserve's monetary policy meeting on Wednesday for clues on whether officials are set to deliver interest rate cuts, which market participants widely expect to begin in September. Employment data at the end of the week, including the closely watched monthly jobs report, could indicate if a nascent downshift in the labor market has become more severe. "This is a critical time for the markets," said Bryant VanCronkhite, a senior portfolio manager at Allspring. "You're having people start to question why they are paying so much for these AI businesses at the same time the market fears that the Fed will miss its chance to secure a soft landing, and it's causing a violent reaction." Recent weeks have shown signs of a rotation out of the high-flying tech leaders and into market sectors that have languished for much of the year, including small caps and value stocks such as financials. The Russell 1000 Value index is up more than 3 per cent for the month-to-date while the Russell 1000 Growth index is down nearly 3 per cent. The small-cap-focused Russell 2000 is up nearly 9 per cent this month, while the S&P 500 has lost more than 1 per cent. Even strong earnings may not be enough to get the broad market out of its recent malaise, at least in the near term, said Keith Lerner, chief market strategist at Truist. "I think the longer-term story is that growth names will carry us through another market high somewhere down the road," he said.

How This Week's Big Tech Earnings Could Affect the Broader Market

Investors will also be looking closely at Microsoft's and Amazon's capital expenditures after Wall Street bristled at Alphabet's AI spending. The stock market has been turned on its head in recent weeks, and the ride may get wilder this week with the majority of the Magnificent Seven reporting earnings at a critical juncture for the group. Bank of America estimates that more than one-third of aggregate S&P 500 earnings will be reported this week. That's in large part because Microsoft (MSFT) will report Tuesday afternoon, Meta's (META) results come when markets close Wednesday, and Apple (AAPL) and Amazon (AMZN) are both slated to report after the bell on Thursday. Those four companies account for nearly 20% of the S&P 500 index -- about as much as the Health Care and Industrial sectors combined. Big moves in their stocks would take major indexes in tow, and markets may be on edge heading into this week's reports after Tesla (TSLA) and Alphabet (GOOGL) earnings sent tech stocks spiraling last week, pulling the sector into a correction and leading the S&P 500 to notch its worst day since December 2022. Any weakness in this week's big tech earnings could widen the cracks that began to show last week. They could also feed into or challenge the narrative coalescing around spending on artificial intelligence (AI) that has weighed on sentiment lately. The Magnificent Seven is expected to report earnings grew 30% from the second quarter last year, when profits totaled more than $81 billion, according to Bank of America. That would represent a slowdown from the prior quarter, but would still far outpace the rest of the S&P 500's profit growth at 6%. Two of the companies reporting this week -- Meta and Amazon -- are expected to be among the largest contributors to aggregate S&P 500 earnings growth. Yet, results from Alphabet last week demonstrated that robust earnings growth may not be enough for Wall Street. Alphabet reported earnings increased 28% in the second quarter, exceeding analysts' estimates. However, the stock tumbled as investors homed in on capital expenditures, which nearly doubled from last year as Google invests heavily in AI infrastructure to keep up with cloud computing rivals Microsoft and Amazon. Alphabet CEO Sundar Pichai defended the company's spending, saying that the risk to Google of underinvesting in AI was greater than the risk of overinvesting. "The CapEx rates are definitely elevated," said CFRA analyst Angelo Zino. "But the way we look at it, higher CapEx should not be viewed as a disappointment. We think it's healthier dollars spent than increasing OpEx, which is not what these companies are necessarily doing." Still, spending has become an overhang for the tech giants. "With job openings down in 2Q," said Bank of America analysts of Meta's upcoming report, "we don't anticipate a repeat of last quarter's higher '24 expense guidance, though higher legal & capex are risks." Amid concerns about AI-related costs, executives may be keen to emphasize how AI is already adding to revenue or expanding margins. "There's kind of a misperception out there that some of these companies are not monetizing [AI]," said Zino. Microsoft, he noted, grew its Azure and cloud services business by 30% in the first quarter, about 7 percentage points of which came from AI services. "The problem is it's coming off such low levels that it's not a huge impact on the broader business," he added. Beyond cloud growth, AI could be benefiting these companies in less easily quantifiable ways, said Zino. "You're seeing things like digital ad spend accelerating this year, and my belief is part of that is because of the improvements that you're seeing on their platforms." The latest earnings from big tech come amid a massive market reorientation. The tech stocks that propelled markets to records in the first half of the year have fallen into a correction as investors rotated into small-cap stocks on hopes that they could benefit from imminent interest rate cuts. For their part, Wedbush analysts aren't too concerned with hyperscalers increasing their spending. "We believe this tech sell-off will be short lived as the Street better digests results and commentary from the broader tech sector," wrote analysts in a note on Thursday. Zino also suggested that while more of a rotation could still be in store for markets, the pullback for tech stocks could prove temporary, potentially presenting "a very nice opportunity for long-term investors."

Wall Street in the haze of the tech selloff as the AI promise lingers - Earnings Scorecard

As investors navigate through the frenzy of quarterly disclosures, the market's turbulent anticipation of major tech companies' results, a crucial Federal Reserve policy meeting, and key employment data is palpable. In a season marked by a whirlwind of corporate earnings announcements, stock reactions amidst macroeconomic events revealed a patchwork of varied performances across sectors such as communication services, consumer discretionary, and technology. This week's earnings scorecard presents a complex picture: with 80% of companies exceeding profit expectations, reflecting signs of strength despite broader economic headwinds. On the revenue front, over half of the reporting firms have surpassed forecasts, hinting at a mixed by generally positive trajectory in corporate performance. Despite these encouraging earnings reports, market sentiment has taken a hit, with a broad decline in stock prices as investors assess the potential ramifications of a tech selloff, that saw the S&P 500 (SP500) mark their biggest one-day losses since 2022. Investors attributed the month-long rally in big tech, culminating during the third week of July, to the tepid earnings from Tesla (NASDAQ:TSLA) and Google parent Alphabet (NASDAQ:GOOGL). Overall, Wall Street closed the week with a dip of about 1.76%. Among the S&P 500 sectors that reported this week, the technology sector and the consumer stocks hold the largest amount of influence, with Alphabet (GOOG) and Tesla (TSLA) moving markets. With a couple of the Magnificent Seven stocks making an appearance in this week's earnings, only further volatility may be on the horizon. With next week's earnings from Microsoft (MSFT), Amazon (AMZN), Meta Platforms (META) and Apple (AAPL), tech giants are expected to only test investor appetite for rallies and falls. Although this year has been marked by gains due to investments in generative artificial intelligence, the second quarter has only hinted on speculations about subsequent extended valuations for these firms. Google-parent Alphabet only contributed to the sell-off deluge after the stock fell on Wednesday morning despite the company posting better-than-expected growth in revenues and profits. Second quarter revenue rose 14% to $84.74 billion, as cloud revenue surpassed $10 billion for the first time. The tech giant also reported profit of $1.89 per share, compared to a profit of $0.45 per share during the comparable period a year ago. According to investment firm Wedbush Securities, the tech sell-off is likely to be "short-lived," due to the rampant growth of artificial intelligence and the cloud. It is of note that the brokerage has repeatedly called the increase in AI spending as the fourth industrial revolution as the firm estimates over $1 trillion in spending to come from companies, utilities and government. International Business Machines (NYSE:IBM) was among the few companies that reported a rise of 4% in extended trading on Wednesday, post reporting second-quarter results and guidance that topped expectations and upped its free cash flow forecast for the year. The company also reported a rise in profit and revenue compared to the previous year, earning $1.99 per share on revenue of $15.77 billion. Tesla (TSLA) shares fell in after hours trading on Tuesday after reporting lower EPS and operating income than anticipated. The company reported that revenue was up 2.3% year-over-year in the second quarter to $25.50 billion, however profits fell with $0.52 per share compared to $0.91 per share a year ago. U.S.'s automobile industry reported a mixed bag of results, with consumer favorites General Motors (NYSE:GM) and Ford Motor Company (NYSE:F) reporting results during the week. Fueled by strong U.S. demand that offset continued still sluggish demand in China, General Motors (GM) reported a 60% increase in its second quarter profit, beating Wall Street's expectations by $0.36. Coupled with an increase to GM's (GM) profit guidance for 2024, shares were moving higher in Tuesday's premarket trading, up nearly 5% before the open. Shares of U.S.-based Ford (F) traded down in after hours trading after the company reported an erosion in its profitability due to increased warranty costs and losses associated with its electric vehicle division. Ford missed Wall Street estimates after the company reported a fall in profit of $0.47 per share, down $0.25 per share from the same quarter a year ago. Total Revenue rose 6% to $47.8 billion. Looking at the airline sector, shares of American Airlines (NASDAQ:AAL) and Southwest Airlines (NYSE:LUV) fell during premarket trading on Thursday despite the companies posting a beat in profits for the quarter. AAL posted a mixed earnings report with a profit of $1.09 per share on revenue of $14.3 billion, compared to a profit of $2.05 per share on revenue of $14.1 billion a year ago. LUV posted an earnings and revenue beat with a profit of $0.58 per share on revenue of $7.35 billion, compared to a profit of $1.09 per share on revenue of $7.04 billion a year ago. Communication service providers AT&T (NYSE:T) and Verizon (NYSE:VZ) were also part of the deluge. Shares of AT&T are gained ground in Wednesday's premarket, earning a lower adjusted profit from a year ago, declining to $0.57 per share from $0.63 per share in the same quarter last year, and in-line with expectations. Verizon reported marginal topline growth and a bottom line that just matched consensus in its second-quarter results, sending shares down 6.7% on Monday. Beverage company Coca-Cola (NYSE:KO) moved higher in early trading on Tuesday after posting an earnings beat, with a profit of $0.84 per share on revenue of $12.31 billion, compared to profit of $0.78 per share on revenue $12 billion.

Big tech names among trending stocks this week as AI frenzy hits roadblock

The U.S. market had a volatile week amid a reversal in fortunes for technology stocks and big developments around the U.S. election race. The S&P 500 (SP500) closed the five-day trading period down -1.55%. The drop in Wall Street's benchmark index was driven by a selloff in big tech, with S&P 500 recording its worst day on Wednesday since December 2022. The tech-heavy Nasdaq Composite (COMP:IND) declined 3.38% this week, and despite a rebound at the end, most big-name tech stocks were in the red at the close of trade Friday. Here were some of the trending stocks this week: Alphabet (GOOG) (GOOGL) slid 7.5% due in part to negative investor reaction towards earnings. The tech giant reported higher-than-expected spending in AI as competition mounts, even though revenues and profits topped expectations. Tesla (TSLA) dropped 10.03% for the week on a disappointing earnings call and a profit miss. Elon Musk pushed back the Robotaxi project further and did not offer any new information on a mass market model. Tesla also warned of margin pressures on its Cybertruck and Model 3 from tariffs on raw materials and finished goods. Crowdstrike (CRWD) continued to hurt from the outage last Friday, dropping around 9.6% in the latest week. Its faulty update affected millions of Microsoft (MSFT) Windows devices globally and triggered a wild week for the stock, which fell 23.1% over June 19 and 22. Seeking Alpha analysts have mixed reactions, with some seeing this decline as a buying opportunity, while others warn to steer clear. Ford Motor (F) plunged 19% this week, as Q2 results and the lingering concerns over warranty expenses spooked investors. Warranty costs and losses tied to its EV division hit the automaker's profitability in the latest quarter, although free cash flow and its ICE segment remained strong. Ford (F) continued to be the most-recalled automaker for the third straight year. Enphase Energy (ENPH) was up nearly 10% as the firm reported the healthiest Q3 bookings in a year amid ongoing demand woes, even though revenues and adjusted profits fell short of analysts' expectations. The energy tech company expects "incremental improvement in our U.S. business and a seasonal slowdown in Europe." ServiceNow (NOW) increased around 9.6% this week with its Q2 results, including momentum stemming from its generative AI packages. ServiceNow CEO Bill McDermott highlighted the growing number of deals with corporate customers utilizing their Gen-AI products, during Wednesday's earnings call. DexCom (DXCM) tumbled nearly 43%, hitting the lowest level in more than four years on Friday after the medical device maker slashed its full-year revenue outlook along with its Q2 2024 financials, drawing downgrades on Wall Street. The maker of continuous glucose monitoring devices beat Street estimates with its Q2 earnings, but its revenue missed forecasts and its revised guidance fell well short of analysts' projections.