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, the economic portal Economx highlighted in its analysis.
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.
Bank of America’s latest fund manager survey revealed that most investors are not selling but holding these stocks for the time being.
Everyone is paying attention to the big tech companies
It is 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 past 3 weeks, the S&P 500 index has lost more than 5 percent of its value, thus halving its gains this year. The worsening market sentiment is mainly due to the fact that inflation is proving to be more permanent than previously expected, and because of this, investors expect less interest rate cuts from the Fed.
But of course, the fact that the rise in the stock market for months made the index expensive, even in historical comparison, also played a role in the correction.
– wrote Economx.
All this at a time when rising government bond yields have put pressure on stock valuations. If, in addition, even the company’s results are not able to meet expectations, it can add fuel to the fire. We previously wrote about the domestic situation, according to which inflation began to decline sharply in the second half of last year. After this year’s expected average inflation of around 4 percent, analysts expect a further decrease in 2025, the rate of price increase may reach close to 3 percent. And this disinflation gives the central bank room to further cut the base interest rate, so the high government bond yields seen in recent years will drop significantly.
There’s still plenty of room to go down
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 selling wave that started on Friday in the tech stock market, falling 10 percent.
Despite the correction, the price/earnings (P/E) ratio of the S&P500 index is still around 20, which is well above the historical average of around 15, so there is still plenty of room to go down.
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, explained Economx in its analysis.
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