Tech Giants Fuel Market Rally Amid Earnings Buzz

Key Takeaway

• US shares rebounded with the Nasdaq 100 up 1%, driven by optimism for big tech earnings and Apple Inc.'s positive outlook.
• Earnings reports from "Magnificent Seven" megacaps are highly anticipated, with profits expected to surge nearly 40%.
• Geopolitical tensions and Federal Reserve's cautious stance remain key factors, alongside tech sector's AI promise influencing market direction.

Tech Earnings Optimism Drives Market Rebound

Following a $2 trillion selloff, US shares rebounded on the back of optimism surrounding big tech earnings. The S&P 500 halted its six-day decline, with the Nasdaq 100 rising 1% led by Nvidia Corp. Apple Inc. emerged as a top pick for 2024 at Bank of America Corp., fueling expectations for robust tech sector performance.

Earnings Expectations and Market Dynamics

Investors are eagerly awaiting earnings reports from about 180 S&P 500 companies this week, including the "Magnificent Seven" megacaps. Expectations are high, with profits forecasted to surge nearly 40% from a year ago. The focus on earnings comes amidst geopolitical tensions and signals of a cautious Federal Reserve stance, underscoring the importance of strong guidance from Corporate America to sustain market momentum.

Geopolitical Factors and Market Sentiment

Treasuries remained volatile ahead of bond auctions, while easing Middle East tensions provided some relief to investors. However, Israeli Prime Minister Benjamin Netanyahu's remarks hint at potential military actions, adding a layer of uncertainty. Oil prices fell due to geopolitical calm, while gold steadied after a recent decline in safe-haven demand.

Tech Sector's AI Promise and Market Outlook

The tech sector's performance hinges on delivering on artificial intelligence promises, with Microsoft Corp., Alphabet Inc., Meta Platforms Inc., and Tesla Inc. set to report earnings. Analysts emphasize the importance of AI contributions to future profits, with traders closely monitoring the sector's earnings trajectory. Despite high expectations, UBS Group AG's Jonathan Golub warns of a cooling momentum in tech earnings, leading to a downgrade in sector recommendations.

Street Views

• Matt Maley, Miller Tabak + Co. (Neutral on the market):

  "Just beating consensus estimates for earnings won’t be enough... We’re going to have to see much better guidance from Corporate America if the stock market is going to resume its advance."

• Michael Wilson, Morgan Stanley (Cautiously Optimistic on profit growth and economy):

  "He expects profit growth to improve as the economy strengthens."

• Mislav Matejka, JPMorgan Chase & Co. (Bearish on company forecasts due to inflation and geopolitical tensions):

  "Hot inflation, a stronger dollar and geopolitical tensions are clouding the outlook."

• Megan Horneman, Verdence Capital Advisors (Neutral on S&P 500 returns):

  "Companies will have to produce earnings — and outlooks — that support the already elevated multiples."

• Marko Kolanovic, JPMorgan (Bearish on equity valuations and market outlook):

  "We remain concerned about continued complacency in equity valuations, inflation staying too hot, further Fed repricing, and a profit outlook where the implied acceleration this year might end up too optimistic."

• Chris Larkin, E*Trade from Morgan Stanley (Neutral/Cautiously Optimistic on tech sector's influence this week):

  "Concerns about rising interest rates, stubborn inflation, and geopolitical risks aren’t going anywhere — but this week, the tech sector may be ‘calling the shots’.”

• Jonathan Golub, UBS Group AG (Bearish on Big Six technology stocks due to negative earnings momentum):> "Earnings momentum is turning decidedly negative following a surge in profit growth."