Big Tech Earnings Are On Deck This Week. Why That Matters

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With Microsoft, Alphabet, Amazon and Meta Platforms set to report earnings next week, investors are shifting their focus from bank earnings to big tech companies.

In fact, only a handful of large-cap technology companies boosted the S&P 500 in the first quarter, despite banking turmoil, uncertainty over the Federal Reserve's interest rate stabilization plan, and recession fears.

Companies such as Facebook Meta Platform, Nvidia ( NVDA ), Microsoft ( MSFT ) and Google Alphabet rose earlier this year, a trend that intensified last month as large-cap tech companies became safe havens for investors. The weighted Nasdaq Composite is up more than 15% this year.

But if they report disappointing results, warn of headwinds, or give investors other reasons to sell, those stocks can begin to fall along with the entire stock market.

The S&P 500 rally is starting to fade a bit. The benchmark index closed 0.1% lower last week as investors weighed mixed earnings and economic data that painted a complicated picture of the state of the economy.

So what do investors look for?

The advice will be of most interest to traders who are looking for signs that the economy is headed for a recession and which companies may be coming out of it. Uncertainty over continued inflation, the Federal Reserve's plans to rein it in, and the possibility of a Wall Street recession have been a major theme since the start of the reporting season.

Another important aspect of technological progress is the race to artificial intelligence.

Since ChatGPT hit the market in November, the pressure on tech companies to develop their own AI modules has grown exponentially. Since then, Meta, Alphabet and Microsoft have expressed their desire to increase their presence in artificial intelligence. The same goes for other tech companies like IBM, Amazon, Baidu and Tencent.

Some tech leaders, including Elon Musk, have warned of the potential consequences of artificial intelligence, with Tesla's CEO pouring investment into the company.

Investors will also look for signs that cost-cutting measures, including massive layoffs, have helped moderate the company's results.

Tech firms last year began laying off workers in an effort to cut costs after overexpanding during the Covid pandemic to maintain skyrocketing growth driven by low interest rates and changing market trends. Spending while Americans stay at home.

After the Federal Reserve raised interest rates last year, Wall Street began to favor companies that prioritized returning cash to shareholders over spending it. That preference is not expected to change this year, especially as the economy is expected to weaken.

Home inventories rose last week despite mortgage rates hitting their highest level in a month.

The S&P Homebuilders SPDR exchange-traded fund rose 3.4% last week, outperforming the broad-based S&P 500 index, which fell 0.1%.

It comes after new housing construction data released on Tuesday showed that US housing construction fell 0.8% in March from the previous month, as multi-family housing contraction outpaced growth.

U.S. home sales data for March brought more bad news, showing that sales fell this month. The decline follows a February reversal of a year-long decline in home sales driven by rising mortgage rates.

So why build up stocks this week despite the disappointing data?

Shares of DR Horton ( DHI ) rose 8.5% last week after the company beat its revenue guidance for the latest quarter and raised its guidance for the full year. This helped lift the rest of the sector as investors became more optimistic that the housing market was on the road to recovery.

Lennar ( LEN ) is up 5.9% over the past week, Toll Brothers ( TOL ) is up about 3% and NVR ( NVR ) is up about 5%. PulteGroup ( PHM ) and KB Home ( KBH ) rose about 4.5% and 5%, respectively.

"This is a clear sign that top-performing and uptrend stocks will be rewarded this season," said Louis Navellier, chief investment officer at Navellier & Associates.

Additionally, investors may face higher mortgage rates this week because they don't expect the increase to continue, he said.

As mortgage rates fell five weeks ago, investors believed the latest data was just a fluke. Naviglier added that stable prices for housing inputs also contributed to improving operating profit of companies.

Monday: Chicago Fed National Activity and Dallas Fed Manufacturing Index. Earnings reports for Coca-Cola ( KO ), First Republic Bank ( FRC ), and Philips ( PHG ).

Tuesday: S&P Case-Shiller home price index and new home sales. From Microsoft (MSFT), Alphabet (GOOGL), Visa (V), PepsiCo (PEP), McDonald's (MCD), United Parcel Service (UPS), Verizon (VZ), General Motors (GM), Chipotle Mexican Grill (Visa) Earnings report CMG), Danaher (DHR) and Halliburton (HAL).

Wednesday: Durable goods orders, retailer inventory forecast, and wholesaler inventory forecast. Meta Platforms (META), Boeing (BA), and ServiceNow (NOW) reported earnings.

Thursday: Q1 GDP, jobless claims, mortgage rates and pending home sales. Amazon ( AMZN ), MasterCard ( MA ), T-Mobile ( TMUS ), Keurig Dr Pepper ( KDP ) and Capital One ( COF ) reported earnings.

Friday: Personal spending, personal income, consumer spending price index, Chicago PMI and consumer confidence from the University of Michigan. Earnings reports from Exxon Mobil (XOM), Chevron (CVX), Colgate-Palmolive (CL), and New York Community Bancorp (NYCB).

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