Earnings season picks up this week, with two Magnificent 7 members’ results taking center stage. Meta Platforms and Tesla will hand in their quarterly numbers on Wednesday, kicking off a series of reports from Big Tech. Alphabet, Microsoft, and Amazon are slated to join the fun next week, followed by Apple on Nov. 2. Microsoft (Nvidia, the most valuable member of the group, won’t report for some time.) The tech sector—and the seven biggest names in it—have played an outsize role in the stock market’s recent gains. Meta will address investors weeks after releasing a widely-embraced AI agent and tailoring the tool for businesses. The momentum comes after Meta’s investment in AI weighed on its profits last quarter.
Investors are also watching Tesla’s investments. The electric vehicle company missed earnings estimates last quarter as it spent heavily on autonomous vehicle and robot projects. Tesla’s third-quarter EV deliveries came in ahead of estimates, and it last week showed off the Roadster, a sports car capable of dashing through the air. But Tesla is also facing a probe into the safety standards surrounding Cybercab, its driverless ridesharing service. The results due in the week ahead may also offer insight on credit card spending and media streaming. Travel, too, with four airlines slated to report: Airline executives were optimistic this spring that consumers would pay higher airfare, but air travel was down about 5% year-over-year in September, and Delta Air Lines recently issued a softer-than-expected outlook.
What analysts are saying about U.S. equities
JPMorgan: “If bond yields are stabilizing, that will help equities through allowing the cycle to look more sustainable, through reducing pressure on AI funding, as well as on consumer finances, and through reducing the drive for P/E compression. Indeed, during the most intense phase of yields spiking, forward P/E for AC World fell by 3 points, for SPX by 3 points and for Europe by 2 points. The multiple compressions might not need to continue.”
Goldman Sachs: “Equity prices should continue to rise as long as earnings grow. Positive but decelerating growth has historically been associated with positive but moderating S&P 500 returns. Equity returns in these environments have historically been driven by earnings growth rather than by valuation expansion. Within the market, a backdrop of positive but decelerating growth usually supports the outperformance of companies with secular growth over those with cyclical growth as well as stocks with price momentum, positive earnings revisions, and low volatility.”
Morgan Stanley: “We favor quality in U.S. equities but see recent volatility creating opportunity in higher-quality cyclicals given still-resilient growth. Capital Goods stands out and has improved revision breadth.”
Evercore ISI: “Last week’s NDX selloff was the beginning of the price discovery process as a “perfect storm” for AI/tech laid down “lines in the sand” that if crossed would transition the AI bull market into a correction, and if accompanied by a recession, could produce an equity bear market.”