Wall Street’s rally faces a new test next week, with a flurry of earnings reports from big US companies, including tech and internet giants that have recently taken control of the market.
Those shares have risen 5-7% so far this month since the Thursday close, while the S&P 500 has risen just 1.6%. The S&P 500 equal weight index, a barometer of the average stock, fell 0.2%.
The expectation for these names is pretty high than it was a month ago, given the performance of the stocks, so I think they will have to deliver said Walter Todd, chief investment officer at Greenwood Capital, Carolina.
“It’s a question we should wait: Can I live up to the expectations that stock prices reflect?”
The strength of these big stocks came amid concerns about a slowdown in the US economic recovery, which helped to cut Treasury benchmark yields this week to their lowest levels in February, before returning to some.
Although the S&P 500 is at record levels after collecting more than 95% of its March 2020 lows, equities have experienced more volatility in recent days as investors try to reconcile bond market signals about the outlook.
In fact, below the surface, stock performance hints at some doubts about economic strength. Growth stocks, which led the market for years as the economy grew slowly, outperformed economically sensitive stocks in July, while smaller stocks, which tend to be more exposed to the US economy, also remained under-cap Russell 2000 down more than 4% this month.
“Investors … have sought security in these mega-caps, especially mega-cap technology companies, which are expected to continue to experience very strong growth,” said Tim Skiendzielewski, chief investment officer at Aberdeen Standard Investments in Philadelphia.
The market capacity of five companies – Apple, Microsoft, Amazon, Alphabet, and Facebook – recently stood at 24.6% of the S&P 500’s market capitalization, almost the highest proportion since 2021.
Less than half of the S&P 500’s shares recently traded above 50-day moving averages, although the index was at or near new highs, compared with more than 90% in April, a sign that “what’s going on below from the surface contradicts the image of power that is depicted if we look only at the popular media said Willie Delwiche, the investment strategist at All Star Charts.
Other reports of difficulties next week include Facebook, Tesla, Visa, Exxon Mobil, and Pfizer. Concerned about the strength of the economy, investors will focus on companies’ expectations for the rest of the year and until 2022.
We may not see many quarters of 70 percent earnings growth in the future, but that still doesn’t mean we’re looking at negative earnings growth said Anu Gaggar, the global investment strategist at Commonwealth Financial Network.
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