Lately many are worried about the stock market. People wait for earnings season looking for good news. They hope big tech companies can provide it.
Large technology and Internet companies in the United States have been making profits like they were two years ago. That’s when the pandemic caused a surge in sales of digital services and electronic devices. Now, people are waiting for these companies to make up for low profits in industries like energy and healthcare.
The five largest companies in the S&P 500 index are Apple, Microsoft, Alphabet, Amazon.com and Nvidia. They represent approximately a quarter of the total value of the index. Analysts estimate its profits will increase 34% from last year.
The S&P 500 overall doesn’t look that strong. They expect their profits to stay more or less the same. Without these five large companies, profits would fall by approximately 5%.
Gary Bradshaw, who manages investments at Hodges Capital Management, says: “It’s very important for big tech stocks to deliver.” He believes that large technology companies have what it takes to lead the market in the latter part of the year.
In recent weeks, rising interest rates have shaken markets. This has made people worry about a possible recession. Tech stocks have also faced some challenges. However, they are still performing better than the overall market.
Netflix and Tesla will announce their earnings soon. Other large technology companies such as Alphabet, Microsoft, Amazon and Meta Platforms will follow. Apple and Nvidia will announce their earnings in early November.
Mike Bailey, director of research at FBB Capital Partners, says that after good earnings in the second quarter, they need to see the same in the third quarter. He believes that the rest of the market will follow the example of the large technology companies.
It’s good that investors are hopeful. Over the past hundred years, the S&P 500 has typically risen during earnings season.
However, there could be a problem. Alphabet and Amazon’s stock prices are up more than 50% this year. Apple and Microsoft are also up almost 40%. This means that people may already expect good news from them.
The stock values ​​of large technology companies are still quite high. Apple and Microsoft, for example, are priced between 27 and 29 times their estimated earnings. This is much higher than the average for the last ten years. For the entire S&P 500, the figure is around 18.
Kim Forrest, chief investment officer at Bokeh Capital Partners, says that when stock prices are high, companies need to make strong profits. They have to do this to keep investors interested.
Therefore, big technology companies have an important role to play this earnings season. They are expected to generate strong profits. People monitor them closely to see if they live up to these expectations.
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