Earnings Season In Focus
Earnings reports crucially impact stock prices and market sentiment.
The US stock earnings season is reaching its climax, with nearly 180 listed companies releasing their financial reports this week, collectively accounting for 40% of the S&P 500's market value. This includes Microsoft, Alphabet (Google's parent company), Meta, and Tesla from the "Magnificent 7". The performance of these "Magnificent 7" will determine the success or failure of the overall stock market during the earnings season. The market expects a 38% surge in profits for the "Magnificent 7" in the first quarter. Excluding these seven companies, the profits of the rest of the S&P 500 constituents are expected to fall by 3.9%.
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Last week, US tech stocks took a sharp plunge from their highs, and one key to the future market is whether this week's earnings season will bring surprises. Among the "Magnificent 7", Tesla's net profit fell by 55% year-on-year in the first quarter, with adjusted earnings per share of $0.45, which was below analysts' expectations of $0.52; revenue was reported at $21.3 billion, the largest annual drop since 2012. The leading electric vehicle company has been troubled by news of weak profits in recent years, such as bottlenecks in industry expansion, intensified competition with continuous price reductions and promotions, and negative news surrounding founder Elon Musk. Investors should pay attention not only to profitability but also to new developments within the companies.
Regarding other tech companies, Microsoft remains comfortably seated as the market value leader, with high expectations for profitability due to its deep involvement in AI. Meta and Alphabet, which both hit new highs in early April, saw the former unexpectedly initiate a dividend policy last quarter, which spurred a surge in stock price. If they were to repeat the dividend policy, the effect might not be as strong; however, if Alphabet were to unprecedentedly issue dividends, it could become a highlight.
Additionally, the streaming entertainment platform Netflix released solid quarterly results last week, but due to less-than-ideal outlooks, the stock price immediately fell by nearly 10%, indicating a significant chance of a decline after earnings announcements. If heavy-weight stocks fall, it will be even harder for the overall market to improve.
It is worth noting that next week, Apple and Amazon from the "Magnificent 7" will also release their earnings, along with the Federal Reserve's interest rate decision, meaning that the true picture of corporate earnings and rate cut pace will not be fully revealed this week. If investors have confidence in tech companies, they might consider buying into US tech funds during this round of adjustments. However, it would be advisable not to rush in with heavy bets and to enter the market in stages.
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