This week, the rapid reports of some of the largest technology and growth-oriented companies on the stock market will arrive. This could be an important test for the stock markets, where a correction was already started this week due to the weakening of interest rate cut expectations.
Tesla, Facebook, renamed Meta Platforms, Google parent company Alphabet and Microsoft will all report their quarterly data next week. All four are members of the “Wonderful Weeks” group of companies with the largest capitalization of the American stock market. In the past year and a half, the S&P 500 index’s rise of more than 40 percent was largely driven by the rise in their exchange rates.
The performance of these companies is considered an important litmus test by investors, as they occupy a dominant position at the top of their industries. Meanwhile, due to their large weight in the basket of indices, the price movement of their shares has too much influence on the indices considered to be the benchmark, such as the S&P 500. Although the market’s march this year has become broader, the so-called “megacap” shares have remained the cornerstone of the portfolios. In Bank of America’s latest fund manager survey, experts again cited holding these stocks as the position most investors are taking.
It is therefore no coincidence that the rapid reports of these companies are surrounded by special attention. Especially now that the long-awaited correction has started. In the last 3 weeks, the S&P 500 index has lost more than 5 percent of its value, thus halving its profit this year. The worsening market sentiment is mainly due to the fact that inflation is proving to be more permanent than previously expected, and for this reason investors expect a smaller interest rate cut from the Fed. We wrote more about this here.
But of course, the fact that the rise in the stock market for months made the index expensive in historical comparison also played a role in the correction. All this at a time when rising government bond yields are putting pressure on stock valuations. If, moreover, even the company’s results are not able to bring the expected results, it can be more fuel for the fire.
By the way, the performance of Csodálatos Hetek’s shares has diverged this year. Tesla, which reports results on Tuesday, is already facing a 40 percent drop in 2024 due to concerns about the electric vehicle market and the company’s market share.
Meta Platforms, on the other hand, which rose in price by more than 40 percent this year, will publish its data on Wednesday. Alphabet and Microsoft on Thursday, the profits of the latter two shares this year are 12 and 7.5 percent, respectively. Nvidia, which has risen by 70 percent this year thanks to the craze for chips needed to operate artificial intelligence, will only publish its data on May 22, but its shares suffered from the sell-off that began on Friday in the tech stock market, falling 10 percent.
Six of the seven “wonderful” companies – excluding Tesla – are expected to achieve a combined profit increase of 42.1 percent in the first quarter, according to the forecast of UBS strategists. Meanwhile, according to JPMorgan analysts, excluding these, the aggregate profit of the companies included in the S&P 500 basket decreased in the previous four quarters in an annual comparison, which strongly indicates the importance of the group for the market. However, including the big ones, according to the consensus of LSEG, the total profit growth could have been 9 percent, if this comes in, it might support the market. Reuters wrote.
This may be necessary, since despite the correction, the price/earnings (P/E) ratio of the index is still around 20, which is well above the historical average of around 15.
There is still room for correction in the S&P 500 index
Image: stooq.com, economx
In any case, after the correction of the past few weeks, there is still plenty of room to go down on the graph of the S&P 500 index. The most important support for the trend that started in October 2022 is much lower than now, around 4680 points, at the level of the local low point set at the beginning of January. This level must not be significantly broken down by the index in order for the cyclical uptrend to remain alive. However, this is still very far, more than 6 percent below Friday’s closing value.
