Last week, the S&P 500 had a good run, gaining 0.7% and reaching a new high for the year at 4,565. This growth was fueled by strong earnings from financial companies, particularly regional banks, which saw a remarkable 7.2% increase, the highest since mid-May. These positive results indicate that consumers are still going strong, and credit quality remains healthy.
The retail sales report showed that consumption growth is also on the rise, despite missing the headline number. The core "control" sales category and previous revisions strengthened the overall picture. However, not all companies had smooth sailing, as NFLX dropped 10.5% in just two days after beating earnings but falling short on guidance. This has raised the bar for MegaCap Tech companies, making investors more cautious about earnings and guidance after a strong rally this year.
Interestingly, while the tech-heavy NDX gained 32% in the first half of the year, the broader NDXE (equal weighted) index lagged behind with a 15% gain. However, since June 1st, NDXE has been catching up, suggesting a potential broadening of the market.
Looking ahead, this week's key focus will be on the Federal Reserve, July PMIs, 2Q GDP, Core PCE, and Personal Consumption data. The first reading on 2Q GDP and July PMIs will be crucial in understanding the economy's soft-landing narratives. Recent data indicates that the economy is still growing, but not at a rapid pace, which could be good news for equities if inflation remains in check.
Key points to watch:
US Futures are up, with a busy week ahead for macroeconomic indicators and earnings reports, including MegaCap Tech companies
The focus will be on PMIs, with expectations for Manufacturing PMI at 46.0 and Services PMI at 54.0
Keep an eye on the detailed PMI report for insights into price and inflation discussions
MegaCap Tech Earnings Preview
The much-awaited Big Tech earnings season is here. Over the year, the combined market cap of mega-cap tech giants has grown impressively by approximately $4.7 trillion, a remarkable 67% surge. Notably, AAPL 0.00%↑ ($980B), MSFT 0.00%↑($890B), and NVDA 0.00%↑ ($810B) have been the major contributors to this growth.
The expectations for these tech giants are high, and investors are closely watching for signs of AI-driven advancements in their numbers and guidance. While NVDA is an exception, most investors aren't expecting the AI euphoria to be fully reflected in the results yet. As long as management communicates well and offers positive insights (e.g., MSFT's copilot pricing strategy), investors will likely continue supporting the recent positive outlook until AI-related upgrades begin to materialize.
Here's a FREE overview of what investors are looking for in upcoming earnings reports. These earnings reports are essential for investors as they can significantly impact the market’s sentiment and performance:
Microsoft (MSFT) - Earnings Date: July 25, after market close
Microsoft's commercial business and Azure (cloud computing) growth are crucial to watch. The expectations for Azure growth in FQ4 are around 28%. Investors are looking for double-digit revenue growth guidance for the future (F24).
The company doesn't formally guide capex, but estimates suggest it will be in the high-$30Bs.
MSFT stock has performed well (+50% YTD), and the implied move after earnings is 4.8%.
Alphabet Inc. (GOOGL) - Earnings Date: July 25, after market close
GOOGL's earnings are highly anticipated after a recent surge in stock price. Investors expect small Q2 beats compared to consensus for various revenue streams.
The Department of Justice investigation into the AAPL/GOOGL smartphone relationship may impact future performance.
The stock has gained significantly (+40% YTD), and the implied move after earnings is 5.1%.
Meta Platforms Inc. (META) - Earnings Date: July 26, after market close
META's valuation has risen impressively (+160% YTD) with a potential $360+ price target. Capex risk is a concern, but if it remains below revenue growth, investors see the stock continuing to perform well.
Buyers are expecting Q2 revenue growth of 10%+ and Q2 guidance around 13-14%.
The stock's implied move after earnings is 8.9%.
Amazon (AMZN) - Earnings Date: August 3
Amazon has transformed from an "AI loser" to an "AI winner" recently, particularly with its cloud service, AWS. The focus is on AWS performance, with investors looking for +9-10% growth in Q2 and Q3 guidance demonstrating accelerating trends.
AMZN's overall Q2 revenue whispers are around $131B.
The stock has performed well (+58% YTD), and the implied move after earnings is 3.4%.
Apple Inc. (AAPL) - Earnings Date: August 4
AAPL's positioning remains steady, but investors are cautious about valuation and regulatory threats. Buyers expect flat or slightly negative revenue growth for FQ3 and modest growth in FQ4.
The stock has seen a notable increase (+49% YTD), and the implied move after earnings is 3.1%.
Gen AI / LLM Remain Dominant Themes
The fascination with LLMs (Language Model Models) and their potential benefits has captivated both corporates and investors alike, resulting in persistent excitement in the market.
Notably, six major LLM innovation companies, including MSFT, GOOGL, AMZN, META, NVDA, and CRM, have driven an impressive 51% of the S&P 500's performance, 54% of the Nasdaq 100, and a remarkable 63% of the Growth factor.
The significance of this trend is further highlighted by the launch of several AI/LLM ETFs this year, which have attracted approximately $1.5 billion in recent inflows. Interestingly, there has also been a surge in short interest in AI-themed ETFs, underlining the growing interest and complexity of this dynamic market.