MSFT, GOOGL, AMZN and META Earnings to Guide Markets

S&P 500 OUTLOOK:

• The S&P 500 and Nasdaq 100 finished the way slightly lower as bullish momentum continued to fade
• Quarterly earnings from megacap tech will steal the limelight next week
• Traders should focus their attention on financial results from Microsoft, Alphabet, Meta and Amazon in the coming days

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Price action has been unimpressive for the S&P 500 and Nasdaq 100 in recent days despite Tesla’s steep sell-off following disappointing quarterly performance. Both indices have lacked clear directional conviction, at least since early April, though they headed modestly lower this week, with the former sliding 0.10% to 4,133.5 and the latter dropping 0.6% to 13,000.8.

In the grand scheme of things, stocks have been buoyant despite serious headwinds such as high rates, elevated inflation, slower growth and shrinking profits, but the positive impetus, which led to a solid rally in the major U.S. equity benchmarks since mid-March, is clearly waning. It appears that investors are waiting to see more corporate earnings before committing additional capital to risk assets.

S&P 500 & NASDAQ 100 CHART

Source: TradingView

On that note, traders will have an opportunity to better assess the health of Corporate America and the broader outlook in the coming sessions when several big companies disclose their previous-quarter financial results and issue forward-looking commentary.

While there are many key releases to pay attention to, the highlights of the week ahead will be earnings reports from Microsoft (MSFT), Amazon (AMZN), Meta Platforms (META) and Alphabet (GOOGL), the parent company of Google. Together, these names account for nearly 14% of the S&P 500’s weight, so they could certainly set the near-term market direction and trading bias.

Below is a summary of next week’s key corporate reports worth watching, but for a more complete list of upcoming events, along with Wall Street’s expectations, check out the DailyFX’s Earnings Calendar.

Source: DailyFX Earnings Calendar

Megacap tech has been one of the most crowded trades in 2023, perhaps on the assumption that the sector will continue to be resilient even when economic growth slows down more noticeably later this year. This has helped keep Wall Street afloat in recent months despite the banking sector turmoil that erupted in March.

To ensure sentiment remains benign, market heavy hitters will have to deliver strong results and, more importantly, positive guidance, otherwise, the S&P 500 and Nasdaq 100 could be in for a rude awakening.

When analyzing incoming earnings reports from the likes of Microsoft and Alphabet, there is another variable traders should consider: management’s outlook for artificial intelligence (AI) and related products.

Microsoft’s rapid foray into AI has been the talk of the town and has triggered a race for control of what could be the next big revolution in the tech industry. If key players in the space fail to live up to the hype and investors’ high expectations or are unable to devise a clear strategy to monetize the technology, Wall Street’s patience could run out, setting the stage for a meaningful sell-off.

Written by Diego Colman, Contributing Strategist for DailyFX