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This week could very much set the tone going forward for markets. A review of data shows that mega-cap tech names, the majority of which are reporting this week, are expected to be the main drivers of fourth quarter earnings growth, according to a Friday note from John Butters, senior earnings analyst at FactSet. Six of the Magnificent Seven companies — Alphabet , Apple , Amazon.com , Meta Platforms , Microsoft and Nvidia — are set to be the top six companies driving year-over-year earnings growth in the fourth quarter, Butters noted. In fact, those six names are projected to post year-over-year earnings growth of about 54% in the fourth quarter, FactSet data shows. Without them, earnings in the other 494 other S & P 500 companies are set to have fallen by 10.5%. And, taken as a whole, S & P 500 earnings are tracking to have eased 1.4% in the quarter. “Are companies in the ‘Magnificent 7’ … expected to drive earnings higher for the S & P 500 for the fourth quarter?” Butters wrote. “The answer is yes.” For investors, that makes earnings results this week crucial. Five of the six — Alphabet, Apple, Amazon, Meta Platforms and Microsoft — are reporting, and the bar is high for each of them to not only beat expectations, but to issue better forward guidance, especially after their recent stock rally has left many investors worrying they’re overbought. Nvidia reports at the end of February. Several mega-cap tech stocks are trading at record highs heading into their respective prints. Microsoft, for example, recently lapped Apple to become the most valuable company in the U.S., and is trading at all-time highs going back to its public debut in 1986. Meta Platforms is also trading at its highest since its IPO in 2012. MSFT ALL mountain Microsoft “The earnings that are coming out this week are going to be very instrumental for the market in trying to understand what the short term path of the market is going to be over the next couple of months,” said Dave Sekera, chief U.S. market strategist at Morningstar Research Services. “From a sentiment point of view, if we do see any of them provide guidance that disappoints the market, we certainly could see not only just a sell off in that individual stock, but because the market cap and those stocks are so large, that would have a great skew in the market,” Sekera wrote. Still, a disappointment could mean a broadening of the rally into value stocks, especially small- and mid-cap names, which have underperformed to start the year, the strategist said. Other sectors investors can rotate into include energy, utilities and real estate. Looking forward, however, FactSet’s John Butters noted that just four mega-cap names will continue to be major earnings drivers next earnings season. In the first quarter of 2024, Alphabet, Amazon, Meta Platforms and Nvidia are projected to report year-over-year earnings growth of almost 80%. By comparison, the entire S & P 500 is anticipated to grow earnings by just 4.6%.
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