With U.S. stocks stuck in their worst rut since the summer, Treasury bonds in a slump, gold testing $5,000 for the first time on record, and geopolitical risks dominating, the stakes couldn't be higher for the first round of mega tech earnings coming up next week.
Four of the so-called Magnificent Seven tech giants -- Microsoft, Meta Platforms, Tesla, and Apple -- are slated to post quarterly earnings next week. The cohort represents around $10 trillion in market value, or around 16% of the entire S&P 500.
Outside of the Mag 7 updates, just over 100 companies are expected to post fourth-quarter updates over the coming week, as well as near-term outlooks that will either test or consolidate that current investor rotation away from tech and growth stocks into so-called value names.
The energy, materials, and industrials subsectors of the S&P 500 have been the benchmark's strongest performers over the past month, while the three sectors that house the Magnificent Seven -- consumer discretionary, information technology, and communications services -- have traded in the red.
Still, those three sectors are expected to comprise nearly half of the $601 billion in collective profits analysts are forecasting for the S&P 500 over the fourth quarter.
While their influence on current market performance is waning, the Magnificent Seven and their commentary on AI demand, data center spending, and the path to converting both of those into profits will be crucial.
Brad Gastwirth, global head of research at Circular Technology, is optimistic.
"This earnings season feels meaningfully different from those of recent years and should help reinforce a broader thesis that AI spending is structural, long duration, and still in the early to middle stages," he said. "Rather than trimming guidance due to macro uncertainty, many companies are likely to highlight expanding AI pipelines, backlog visibility, and supply chain tightness as signals of future growth."
Lori Calvasina, head of U.S. equity strategy at RBC Capital Markets, sees it differently.
"We see risk of AI overspend/overhype as a risk to be vigilant on, especially since valuations and capex spend for the biggest market cap names have been near past peaks," said Calvasina.
"For now, concerns that the AI trade is overdone appears to be fueling healthy rotation within the U.S. equity market and risk management," she added.
That could be a problem. Stocks are on pace for their first round of back-to-back weekly declines since June, and the S&P 500 barely has budged from its pre-Christmas trading levels.
On the flip side, benchmark 10-year Treasury note yields have risen nearly 10 basis points over the past month, and are now pegged at the highest levels since September amid a mix of " Sell America" pessimism, fiscal anxiety stoked by a bond market selloff in Japan, and stubborn inflation pressures.
Other risk-off indicators, tied in part to the swirling morass of geopolitical events, continue to flash red. Gold is within touching distance of $5,000, while silver could top $100 an ounce over the coming days. The U.S. dollar index, meanwhile, suffered its worst week in seven months and just turned negative for the year.
Alexander Guiliano, chief investment officer at Resonate Wealth Partners, expects this to continue.
"There are just too many headlines from Washington, coupled with the usual pace of earnings and economic data," he said.
However, he also noted that the selloff that occurred prior to President Donald Trump's speech to the World Economic Forum in Davos, which saw the S&P 500 tumble more than 2%, "ended up being a nice buying opportunity, especially for those who have missed much of the rally over the past several months."
Next week's action, which also includes an interest rates decision from the Federal Reserve, key jobs and inflation data, and what could an early read on the "Sell America" trade in the form of Treasury bond auctions valued at $183 billion, is likely to be just as pivotal.
"The early signs of broadening out are interesting, refreshing, and potentially important, but January is known for false starts and sharp rotations that don't always last," said Kristian Kerr, head of macro strategy at LPL Financial.
"The next few weeks will be critical in determining whether this is the beginning of a new market regime or simply another early year head fake, " he added.
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