Introduction
With the conclusion of Alcoa’s (AA) earnings release, it’s time for the spotlight to shift from banks to the tech giants as they gear up to announce their third-quarter results. While notable companies like PepsiCo (PEP) and Delta Air Lines (DAL) have already disclosed their earnings earlier this week, the market eagerly awaits the reports from Tesla (TSLA) and Netflix (NFLX), scheduled for Wednesday. As we delve into earnings season, it’s important to remember that the performance of banks is no longer a true representation of the US economy, instead reflecting changes in monetary and regulatory policies.
The Impact of Banks on the Market
Though banks and insurers, including Visa (V) and Mastercard (MA), make up 12.7% of the S&P 500 financials sector by market value, their contribution to third-quarter earnings is estimated at 17.4% according to Refinitiv data. However, the market seems less concerned about their performance as they are no longer the primary drivers of the economy. These institutions spend a significant portion of their earnings calls discussing monetary policies and regulatory matters.
The Tech Giants Take Center Stage
The real start of earnings season arrives on Wednesday, as the tech giants responsible for propelling the S&P 500 this year prepare to announce their results. Tesla (TSLA) and Netflix (NFLX) will kick off the series, followed by Alphabet (GOOGL), Microsoft (MSFT), Meta Platforms (META), and Amazon.com (AMZN) in the following week. Apple (AAPL) is set to report on November 2nd, while Nvidia’s (NVDA) fiscal third quarter concludes on October 31st with its report scheduled for late November.
Impact of the Magnificent Eight
The tech giants, often referred to as the “Magnificent Eight,” hold significant weight in the market due to their premium valuation multiples. While they account for about 30% of the S&P 500’s market capitalization, their expected contribution to third-quarter sales is only 10%, with earnings projected to make up 16% according to Refinitiv. As these companies release their results, any exceeding or lagging expectations will have a substantial impact on the overall index.
Conclusion
As earnings season gains momentum, the focus has shifted from banks to the tech giants that have driven the S&P 500 this year. With Tesla and Netflix leading the charge, investors eagerly anticipate the reports from other influential players like Alphabet, Microsoft, Meta Platforms, Amazon.com, and Apple. Keep a close eye on the performance of these tech giants as it is likely to result in significant movements within the index.
Technology Giants Set to Drive S&P 500 Earnings Growth
Analysts project that Meta, the technology conglomerate, will report a significant increase in earnings for the third quarter, reaching $8.0 billion. This represents a staggering 120% surge compared to the same period last year, contributing significantly to the overall expected earnings growth of the S&P 500.
Furthermore, other tech powerhouses such as Nvidia, Amazon, Alphabet, and Microsoft are also expected to have a substantial impact on the S&P 500’s earnings growth. Nvidia alone is projected to contribute 1.5 percentage points, while Amazon, Alphabet, and Microsoft are estimated to add 0.6, 0.5, and 0.5 percentage points respectively. The performance of these major companies will ultimately shape the S&P 500’s earnings growth trajectory.
However, there is little room for error as analysts predict a modest 1.3% year-over-year earnings growth for the S&P 500 in the third quarter. Exxon Mobil and Pfizer are anticipated to be significant detractors from the index’s year-over-year earnings growth, with Exxon Mobil estimated to have a negative impact of 1.9 percentage points and Pfizer with 1.5 percentage points.
Notably, the success of Big Tech’s results can also sway investor sentiment. Artificial intelligence (AI) has emerged as one of the most influential drivers of the stock market this year. While companies like Nvidia are already reaping the benefits of AI, others may simply be discussing its potential without tangible results. It is essential for major players like Microsoft, Meta, and Alphabet to demonstrate that their investments in AI are yielding positive returns. Although it is still early in the AI revolution, progress will be closely watched by investors and may directly impact the remarkable market rallies witnessed within these companies, often referred to as the “Magnificent Eight.”
Although the third-quarter earnings season has commenced, the true excitement has yet to unfold.
