(Bloomberg) — Investors wondering where the S&P 500 index is headed for at least the next month or so will want to keep an eye on three important days this week.
From Tuesday to Thursday, five major tech companies with a combined market value of more than $10 trillion (Microsoft Corp., Alphabet Inc., Metaplatforms Inc., Amazon.com Inc., and Apple Inc.) are scheduled to report their financial results. . The Fed will announce its decision on interest rates, followed by a press conference in which Chairman Jerome Powell will discuss the outlook.
The stakes are high as central banks begin to ease monetary policy, pushing the S&P 500 index to record levels on the belief that big tech companies like Microsoft are becoming more valuable by the day. It couldn’t be any higher.
“Technology disproportionately drove the market last year, and big tech companies continue to have the most earning power, so the results have been strong for the market,” said Chris Zaccarelli, chief investment officer at Independent Advisor Alliance. It’s going to be very important.”
After a rocky start to the year, the S&P 500 index is up again, more than 18% since late October, when the index hit a near-term low before Fed officials began hinting at the possibility of raising interest rates. This is the fastest pace of increase in three months. that’s all.
The rally was once again led by mega-cap stocks such as Microsoft, Alphabet, Amazon.com, Nvidia and Meta Platforms, which have seen the index’s decline over the past year as investors become fascinated by the potential of artificial intelligence services. These stocks accounted for most of the 24% rise. The so-called Magnificent Seven, which includes Tesla Inc., is at an all-time high of 29% of the S&P 500 index, despite a slump in the electric car maker’s stock price and more than $200 billion in market capitalization wiped out this month alone. I just recorded it.
AI boom
Microsoft and Alphabet will report their results after the market closes on Tuesday. Both companies are best placed to benefit from the AI boom, having invested heavily in this space over the years. Microsoft is adding these features to its suite of software products, and investors are betting that AI will soon boost profits and sales growth.
On Wednesday, focus shifts to the end of the Fed’s January meeting, with the Fed expected to keep interest rates on hold for a fourth straight meeting. Traders will be mainly focused on what Mr. Powell and other policymakers say about the timing of easing. Recent data showing continued decline in inflation and solid growth in the U.S. economy suggest that central bankers are in no hurry to cut interest rates.
Apple will be the biggest stock on Thursday, with Amazon and Facebook-owned MetaPlatform also announced in the afternoon. The iPhone maker has been plagued by concerns about revenue growth and is expected to report its first sales increase in four quarters.
With most of the mega-caps at record levels, there are concerns that investors are overexposed to just a handful of stocks, which could mean some pain if quarterly results are down. may be accompanied by
Magnificent Seven stock was once again named the most crowded trade in Bank of America’s fund manager survey, according to a research note published by Bank of America last week.
no protection
Still, options market data shows traders are in no hurry to hedge against the decline.
Apple’s price forecast for the next three months is hovering around its lowest level in six years. Traders expect the stock to rise 3.3% in either direction the day after the earnings report, the narrowest post-earnings swing in two years.
Metaplatform’s three-month forecast volatility has more than quadrupled since its November 2022 low, but is the lowest in two years. The cost of defending against Microsoft’s 10% decline next month remains near its lowest level since August, compared with the cost of an option to profit from a similar rise.
Tesla demonstrated that risk last week after missing fourth-quarter profit estimates and warning that sales growth in 2024 would be “significantly lower.” The stock price fell 12% the next day, the biggest decline in a year.
Microsoft recently surpassed Apple as the world’s most valuable company, with a market value exceeding $3 trillion. The rally has sent the stock even higher, now trading at 33 times expected earnings over the next 12 months, compared to an average of 24 times over the past decade.
For CI Roosevelt senior portfolio manager Jason Benowitz, there’s no question that mega-cap stocks are crowded. But that doesn’t mean stocks can’t continue to rise due to slower economic growth and easing financial conditions.
“There’s a reason for the crowded trading,” he said. “The environment is good for them.”
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