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With Microsoft, Alphabet, Amazon and Meta Platforms all slated to report earnings this coming week, investors are turning their attention away from bank earnings to Big Tech.
That’s because just a handful of large-cap tech stocks powered the S&P 500’s gains during the first quarter despite banking turmoil, uncertainty about the Federal Reserve’s plan to stabilize prices and recession fears.
Companies including Facebook-parent Meta Platforms, Nvidia (NVDA), Microsoft (MSFT) and Google-parent Alphabet surged at the beginning of this year, with that trend accelerating last month when large-cap tech names became havens for investors. The tech-heavy Nasdaq Composite is up over 15% this year.
But if they report disappointing results, warn of headwinds or give investors any other reason to sell, those stocks could start trending down — and so could the broader equity market.
The S&P 500’s rally has already started to peter out somewhat. The benchmark index closed 0.1% lower last week, after investors waded through mixed earnings reports and economic data that revealed a complicated picture of the economy’s health.
So, what will investors be on the lookout for?
Guidance will be of utmost importance for traders watching for signs that the economy could be headed for a recession, and which companies will be able to weather it. That’s been a key theme since the beginning of earnings season, as continued uncertainty about inflation, the Federal Reserve’s plans to tame it and the possibility of recession loom over Wall Street.
Another major theme for tech earnings is the race toward artificial intelligence.
The pressure on tech companies to develop their AI units has grown rapidly since ChatGPT entered the market in November. Since then, Meta, Alphabet and Microsoft have expressed their intent to strengthen their presence in the AI space. So have other tech firms like IBM, Amazon, Baidu and Tencent.
While some tech leaders, including Elon Musk, have warned of possible repercussions from AI, investments — including from the Tesla chief executive himself — have abounded.
Investors will also be looking for signs that cost-cutting measures, including mass layoffs, have helped pad the company’s bottom lines.
Tech companies began sizing down their workforces last year in an effort to save costs after over-expanding during the Covid pandemic to keep up with stratospheric growth, driven by low interest rates and consumer trends that shifted as Americans stayed home.
Wall Street last year began favoring companies that prioritized returning cash to shareholders rather than spending it, after the Fed’s ramp-up of interest rates. That preference is unlikely to change this year, especially as the economy is expected to weaken.
Home builder stocks gain despite a rise in mortgage rates
Home builder stocks rose last week, even as mortgage rates jumped to their highest level in a month.
The SPDR S&P Homebuilders exchange-traded fund rose 3.4% last week, outperforming the broad-based S&P 500 that fell 0.1%.
That comes after new home starts data released Tuesday revealed that US home building fell 0.8% in March from the month before, as a drop in multi-family home construction outpaced a rise in single-family homes.
US home sales data for March brought even more bad news, showing that sales fell that month. The decline follows a reversal in February from a full year of falling home sales, driven by jumps in mortgage rates.
So, why did home builder stocks rise this week, despite a slate of disappointing data?
DR Horton (DHI) shares climbed 8.5% last week after the company roundly beat earnings expectations for its latest quarterly and raised its full-year outlook. That helped lift the rest of the sector, as investors grew optimistic that the housing market is on the road to recovery.
Shares of Lennar (LEN) climbed 5.9% last week, Toll Brothers (TOL) gained about 3% and NVR (NVR) advanced about 5%. PulteGroup (PHM) and KB Home (KBH) rose about 4.5% and 5%, respectively.
“It’s a clear sign that this earnings season, the stocks that beat and guide higher are going to be rewarded,” said Louis Navellier, chief investment officer at Navellier & Associates.
In addition, investors are able to look past this week’s rise in mortgage rates because they don’t expect the gains to hold, he said.
Mortgage rates fell for five weeks prior, leading investors to believe that the latest data is a blip. Stabilization in prices of home building inputs also make the case for better operating margins for companies, Navellier added.
Monday: Chicago Fed national activity and Dallas Fed manufacturing business index. Earnings reports from Coca-Cola (KO), First Republic Bank (FRC) and Philips (PHG).
Tuesday: S&P Case-Shiller home price index and new home sales. Earnings reports from Microsoft (MSFT), Alphabet (GOOGL), Visa (V), PepsiCo (PEP), McDonald’s (MCD), United Parcel Service (UPS), Verizon (VZ), General Motors (GM), Chipotle Mexican Grill (CMG), Danaher (DHR) and Halliburton (HAL).
Wednesday: Durable goods orders, advanced retail inventories and advanced wholesale inventories. Earnings reports from Meta Platforms (META), Boeing (BA) and ServiceNow (NOW).
Thursday: Q1 GDP, jobless claims, mortgage rates and pending home sales. Earnings reports from Amazon (AMZN), MasterCard (MA), T-Mobile (TMUS), Keurig Dr Pepper (KDP) and Capital One (COF).
Friday: Personal spending, personal income, PCE price index, Chicago PMI and University of Michigan consumer sentiment. Earnings reports from Exxon Mobil (XOM), Chevron (CVX), Colgate-Palmolive (CL) and New York Community Bancorp (NYCB).