New York (CNN) With Microsoft, Alphabet, Amazon and Meta Platforms all set to report earnings next week, investors are shifting their focus from banking earnings to Big Tech.
Indeed, only a handful of large-cap tech stocks fueled first-quarter S&P 500 gains despite banking turmoil, uncertainty about the Federal Reserve’s plan to stabilize prices and recession fears.
Companies, including Facebook’s parent meta-platforms, Nvidia (NVDA), Microsoft (MSFT) and Alphabet, Google’s parent company, surged earlier this year, with that trend accelerating last month when large-cap tech names became havens for investors. The tech-heavy Nasdaq Composite is up more than 15% this year.
But if they report disappointing results, warn of headwinds, or give investors another reason to sell, those stocks could start falling — just like the broader stock market.
The S&P 500 rally has already started to falter somewhat. The benchmark index closed 0.1% lower last week after investors combed through mixed earnings reports and economic data that painted a complicated picture of the economy’s health.
So what will investors be looking out for?
The guidance will be of utmost importance to traders watching for signs that the economy could be heading into a recession and which companies will be able to weather it. This has been a key theme since the start of the earnings season, as continued uncertainty about inflation, the Federal Reserve’s plans to bring it under control and the possibility of a recession threaten Wall Street.
Another major theme of technological gains is the race for artificial intelligence.
The pressure on tech companies to grow their AI units has grown rapidly since ChatGPT entered the market in November. Since then, Meta, Alphabet and Microsoft have expressed their intention to strengthen their presence in the AI space. The same goes for other tech companies like IBM, Amazon, Baidu, and Tencent.
While some tech leaders, including Elon Musk, have warned of the possible repercussions of AI, investments — including from Tesla’s chief executive himself — have poured in.
Investors will also look for signs that cost-cutting measures, including mass layoffs, have helped improve company results.
Tech companies began cutting staff last year in a bid to cut costs after over-expanding during the Covid pandemic to keep up with stratospheric growth, driven by low interest rates and consumer trends that have changed as Americans stayed home.
Last year, Wall Street began favoring companies that prioritized getting money back to shareholders rather than spending it after the Fed hiked interest rates. This preference is unlikely to change this year, especially as the economy is expected to weaken.
Homebuilder stocks rise despite rising mortgage rates
Homebuilder stocks rose last week even as mortgage rates hit their highest level in a month.
The SPDR S&P Homebuilders exchange-traded fund rose 3.4% last week, outperforming the broad-based S&P 500 which fell 0.1%.
It comes after data on new home starts released on Tuesday showed U.S. home building fell 0.8% in March from a month earlier, the drop in multi-family home construction outpacing the rise in single-family homes.
U.S. home sales data for March brought even more bad news, showing that sales fell that month. The decline follows a reversal in February of a full year of declining home sales, led by jumps in mortgage rates.
So why did homebuilder stocks rise this week, despite a string of disappointing data?
DR Horton (DHI) Shares soared 8.5% last week after the company comfortably beat earnings expectations for its final quarter and raised its full-year outlook. This helped lift the rest of the sector as investors became optimistic that the housing market is on the road to recovery.
Shares of Lennar (LEN) climbed 5.9% last week, Toll Brothers (TOL) gained about 3% and NVRs (NVRs) advanced by about 5%. Pulte Group (MPS) And Knowledge base home (KBH) increased by approximately 4.5% and 5%, respectively.
“It’s a clear sign that this earnings season, stocks that beat and lead up are going to be rewarded,” said Louis Navellier, chief investment officer at Navellier & Associates.
Also, investors can look past this week’s mortgage rate hike as they don’t expect the gains to hold up, he said.
Mortgage rates fell for five weeks prior, leading investors to believe the latest data is a blip. Stabilizing home building input prices also argue for better operating margins for businesses, Navellier added.
Monday: Chicago Fed National Activity and Dallas Fed Manufacturing Index. Earnings reports from Coca-Cola (KO), First Republic Bank (FRC) and Philips (PHG).
Tuesday: S&P Case-Shiller home price index and new home sales. Revenue reports from Microsoft (MSFT), Alphabet (GOOGL), Visa (V), PepsiCo (PEP), McDonald’s (MCD), United Parcel Service (UPS), Verizon (VZ), General Motors (GM), Chipotle Mexican Grill (CMG), Danaher (DHR) and Halliburton (HAL).
Wednesday: Durable Goods Orders, Advanced Retail Inventories, and Advanced Wholesale Inventories. Revenue reports from Meta Platforms (META), Boeing (BA), and ServiceNow (NOW).
THURSDAY: Q1 GDP, unemployment insurance claims, mortgage rates and pending home sales. Revenue reports from Amazon (AMZN), MasterCard (MA), T-Mobile (TMUS), Keurig Dr Pepper (KDP), and Capital One (COF).
Friday: Personal Spending, Personal Income, PCE Price Index, Chicago PMI, and Consumer Sentiment from the University of Michigan. Earnings reports from Exxon Mobil (XOM), Chevron (CVX), Colgate-Palmolive (CL) and New York Community Bancorp (NYCB).