Investor Alert: The Vital Link Between Big Tech Earnings and the Ongoing Market Rally
By April Fowell
The IT sector still dominates the stock market. While experts have called for a broadening out of the market recovery, new data from FactSet indicates that they believe Big Tech firms will be the primary driver of Q4 earnings growth for the S&P 500.
It is anticipated that the combined earnings of Apple, Alphabet, Microsoft, Amazon, Meta, and Nvidia would increase by 53.7% during the fourth quarter. It is anticipated that the remaining 494 S&P 500 businesses would witness a 10.5% decrease.
This week, five of those businesses, Apple, Alphabet, Microsoft, Amazon, and Meta, will release their quarterly financial reports.
Following Tesla's disappointing report, the final member of the "Magnificent Seven," Julian Emanuel, managing director of Evercore ISI, said that the stock price response to these releases was "critical for overall market direction."
There are enormous expectations for certain names. It's anticipated that Nvidia's profits per share would increase by over 400% in comparison to the same time last year. Analysts predict a 175% increase in Meta's profits per share over the same time last year.
Big Tech's Anticipated Growth: A Market Game-Changer
It is anticipated that several of the market's major stocks will continue to have astounding growth in the upcoming quarter. Amazon, Alphabet, Meta, and Nvidia are predicted to have earnings growth of about 80% in the first quarter of 2024, according to a second FactSet graphic. It is anticipated that the total earnings of the remaining 496 companies-which include Tesla, Microsoft, and Apple-will increase by 0.3%.
Some on Wall Street believe that the S&P 500 may not be overvalued even if it is reaching all-time highs due in part to these enormous profit expectations.
Investors will be eagerly following these quarterly reports for a straightforward reason: according to a study by Yahoo Finance's Jared Blikre, the same tech companies, aside from Tesla, accounted for roughly 90% of the market's current January rally's rise. This followed the seven IT firms that dominated the market in 2023.
However, expectations for tech profitability extend beyond the quarterly results. During earnings calls, they also give updates on numerous narratives that move the market.
For Meta and Nvidia, artificial intelligence has been the driving force behind increases in profitability. Although Amazon and Microsoft also use AI, their cloud income is usually examined more closely. Furthermore, Apple's products division can offer a window into the hardware market and the general level of consumer spending.
Because of all of this, tech profits are very important to the market. Not only do people expect Big Tech to do well, but if their results fall short of expectations, the sections of their operations that are trailing behind might signal an impending economic slowdown.