In an unstable economic climate marked by geopolitical unrest, concerns about the Federal Reserve and soaring Treasury yields, investors are closely watching this week's Big Tech earnings for clues about where the volatile stock market may head next.
The world's biggest multinational companies could offer Wall Street some insight about how the global economy is faring.
What's happening: On Tuesday afternoon Microsoft and Google parent Alphabet — two of the so-called Magnificent Seven tech companies that have driven the market's gains this year— released strong third-quarter earnings.
Still, there's more to come from Amazon and Meta this week. Nvidia and Apple will report later this month. The top tech companies — Apple, Amazon, Nvidia, Microsoft and Alphabet — combine to make up a quarter of the S&P 500's value, giving them an outsized impact on investors' portfolios.
That means investors are watching their earnings particularly closely for prognostications about where the market is headed next.
Tuesday's results were a good start. Alphabet reported quarterly sales of $76.69 billion, up 11% from the same period in the prior year. The company also posted profits of $19.69 billion for the quarter.
Meanwhile, Microsoft posted revenue of $56.5 billion, representing 13% year-over-year sales growth, also beating expectations. Microsoft's quarterly profits hit $22.3 billion, up 27% from the year-ago period.
Microsoft shares gained nearly 4% in premarket trading as traders breathed a sigh of relief. Alphabet shares fell by about 6% — the company beat analyst expectations on revenue and earnings per share, but fell short in its cloud business, sending the stock lower.
Big tech controls the market: Excluding Big Tech, the average earnings for S&P 500 companies would drop by 5% this quarter, according to Bloomberg Intelligence data. With them, the S&P 500's earnings are expected to be flat.
Nvidia in particular is expected to be the largest contributor to earnings growth for the entire S&P 500 this quarter, according to FactSet data. If the company were excluded, the earnings decline for the S&P 500 for the quarter would increase to 1.8% from 0.4%, the company estimated.
But in a market where techs are so overweight problems can arise. "Big Tech valuations pose risks for the broader markets, as Big Tech has contributed to almost all of the stock market's year-to-date gains," said David Bahnsen, chief investment officer of the Bahnsen Group. "This lack of market breadth suggests that investors are still highly prone to chasing momentum and getting overly excited about different market themes and stories, such as artificial intelligence."
It also suggests that there's not a lot of room for any Big Tech earnings missteps. Until all the Big Techs report, investors will remain on tenterhooks.
"The movement of the Magnificent Seven after earnings will be very telling," said Louis Navellier, chairman of Navellier & Associates.
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