The tech earnings season is set to begin, with the fate of the market hanging in the balance. As of now, about 14% of S&P 500 companies have reported their June quarter earnings, and the blended earnings growth rate for the broader index remains healthy. However, the upcoming week will see the official start of the tech reporting season, which could potentially decide the market’s direction after a recent steep pullback.
Last week, the tech earnings season had a modest start with chip-equipment maker ASML Holding N.V. reporting its earnings. The company’s stock slumped about 16% due to a weak third-quarter outlook and concerns over the China chip ban. Netflix, Inc. also disappointed investors with its guidance, but the stock did not experience a significant decline as sell-side analysts were positive about the results.
On a positive note, big banks such as Bank of America Corporation, Morgan Stanley, and Goldman Sachs Group, Inc. reported strong earnings, thanks to a rebound in investment banking business and robust trading revenue. According to FactSet, 80% of these companies reported earnings per share above estimates, slightly higher than the five-year average. However, the average upside of 5.5% fell below the five-year average of 8.6%.
Looking ahead, the blended earnings growth rate for S&P 500 companies for the second quarter is estimated at 9.7%, up from 9.1% in the previous week. If this estimate holds true, it will mark the highest year-over-year growth rate reported since the fourth quarter of 2021. Additionally, it is expected to be the fourth consecutive quarter of growth. Sectors such as communication services, healthcare, IT, and financials are likely to report double-digit earnings growth, while the materials sector is expected to see earnings declines.
In the coming week, 138 S&P 500 companies, including seven Dow 30 components, are scheduled to release their earnings reports. Among the closely watched companies are Tesla, Inc. and Alphabet, Inc., given their significant weightings in the S&P 500 and Nasdaq indices. Tesla is anticipated to report a sharp year-over-year decline in earnings per share, primarily due to price cuts aimed at boosting sales volume. Analysts and fund managers remain optimistic about the company’s future performance. Alphabet’s earnings are crucial as they will set the tone for other AI-leveraged mega-cap companies in the space.
The stock market experienced a setback last week, with major indices retreating from their record highs. The Invesco QQQ Trust and SPDR S&P 500 ETF Trust both declined, reflecting the overall market sentiment.