Wall Street is getting ready for one crazy Wednesday: A Federal Reserve meeting, a Senate committee vote on a new Fed chairman, and earnings reports from four Mag Seven companies after the closing bell.
Even if the Fed doesn't do anything to make investors nervous, the market needs Big Tech earnings to live up to the hype. The April market rebound needs more good news if it's going to have room to run.
The S&P 500 and Nasdaq Composite are now back at all-time highs. Following a rough first quarter, the S&P 500 has surged 10% in April while the Nasdaq has soared 15% so far this month. Sentiment is running high. The Cboe Volatility Index, also known as Wall Street's fear gauge, has tumbled from above 30 in late March to a more reasonable level of 18.
Adding to the stakes: Never before have powerhouses Alphabet, Microsoft, Amazon, and Meta Platforms all posted earnings on the same day. A different quartet of Big Tech behemoths achieved that twice in 2020 -- Facebook (now Meta), Amazon, Alphabet, and Apple, according to Dow Jones Market Data.
Chip equipment giant KLA and semiconductor maker Qualcomm also will release their latest results Wednesday afternoon. And if all that weren't enough, investors are still keeping a watchful eye on the war in Iran and oil prices.
That's a lot for the market to digest.
To get a feel for all the potential volatility, let's first look at the Fed. Traders aren't expecting any changes to interest rates in what should be Jerome Powell's final meeting as chairman of the central bank.
Assuming Kevin Warsh, President Donald Trump's nominee to succeed Powell, is confirmed by the Senate -- and there isn't a Supreme Court decision on Trump's attempt to dismiss Fed governor Lisa Cook -- all eyes will turn to whether the Fed may resume its rate-cutting cycle later this year.
Fed funds futures are pricing in a 30% probability of lower rates by December, up from only a 3% chance of rate cuts a month ago.
So there may not be any significant surprises from the Fed on Wednesday, especially now that Powell is essentially a lame duck. But earnings from Alphabet, Amazon, Microsoft, and Meta could be another story.
These big techs haven't been so grand lately. The Roundhill Magnificent Seven exchange-traded fund is only up about 1.7% this year, trailing the S&P 500's 4.8% gain and Nasdaq Composite's 7.1% increase.
The Mag Seven no longer trade in tandem either, as investors seek to identify potential artificial-intelligence winners and losers. Just look at the four companies set to report their results Wednesday afternoon.
Alphabet and Amazon are up 12% and 13% respectively this year and both stocks are near records. But Microsoft, despite a partnership with OpenAI, is down 12% this year. Meta is lagging behind the broader market's gains; it's up just 3%.
The remaining three Magnificent Seven stocks have also diverged. Apple, which reports earnings Thursday, is down nearly 2% this year. Tesla, the worst-performing Mag 7 stock, announced earnings last week. Shares have tumbled 16% in 2026. Nvidia, which reports earnings in late May, is up 16% year to date. That is a solid gain but it actually makes Nvidia one of the laggards in the red-hot semiconductor sector.
So what can investors expect from the Big Tech companies when they report results? If history is any guide, the numbers should be solid, but Wall Street's reaction may be mixed.
According to Dow Jones Market Data, Amazon and Meta each beat consensus earnings per share forecasts three out of the past four quarters. Meta's stock has gone up, on average, 3.6% the day after earnings while Amazon's has dipped an average of 1.1%. Alphabet and Microsoft both topped estimates in each of the past four quarters. Yet Alphabet's stock has gained an average of just 1.2% after earnings while Microsoft's stock has been relatively flat following results.
For all four companies, it could be the case that their guidance, particularly with regard to capital expenditures since all four are spending heavily on AI, may matter more than earnings.
"Given the AI-oriented strength in the latest market run, the outlook and spending plans of the Magnificent 7 will be key to keeping the momentum going," said Louis Navellier, founder, chairman and chief investment officer of Navellier & Associates, in a report Monday.
It helps that valuations for several of the stocks in this quartet now seem reasonable.
Meta and Microsoft are trading at just 22 and 23 times earnings estimates for the next 12 months, just a slight premium to the S&P 500's multiple. The Roundhill Magnificent Seven ETF is trading at 29 times earnings estimates, lifted by higher valuations for Amazon and Alphabet. So the stocks aren't exactly cheap, but the ETF is trading below its peak multiple of 35 times forward earnings estimates from October 2023.
So investors need to brace themselves for Wednesday. Even if the changing of the guard at the Fed doesn't do much for stocks, earnings from Alphabet, Amazon, Microsoft and Meta, which are collectively worth nearly $12 trillion, need to be good enough for the April stock market rebound to keep blooming in May.
Comments