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Big Tech stocks are the main reason the S&P 500 has soared more than 35 per cent to a record since two autumns ago. A small handful of seven has been responsible for the majority of the index’s returns over that time, propelled by a furor around artificial-intelligence technology and expectations for continued dominance.
Five members of that group, which have been nicknamed “the Magnificent Seven,” will report their latest quarterly profits this upcoming week: Apple, Alphabet, Amazon, Meta Platforms and Microsoft.
Because they’re so much more massive in size than almost every other stock, their movements pack much more weight on the S&P 500 and other indexes. They’ll need to meet analysts’ expectations for growth to justify their huge recent moves.
And that’s not all that’s coming this week.
On Wednesday, the Federal Reserve will make its latest decision on what to do with interest rates. Traders expect it to make no move, but the hope is that it may cut interest rates at its next meeting in March. That would mark the first downward move since the Fed began dramatically raising interest rates two years ago to get inflation under control.
A wave of encouraging data has Wall Street believing its dream scenario can come true: The Fed will successfully conquer high inflation and soon deliver the cuts to rates that investors crave, while the economy skirts through without falling into a recession that seemed inevitable last year.
It’s a big week on Wall Street. Credit: Bloomberg
On Friday, an economic report could bolster or weaken beliefs in that dream. The government will release the latest monthly update on the job market, and economists expect it to show continued growth in hiring, but at a cooler pace. That’s exactly what the Fed would want to see because too much growth could mean upward pressure on inflation.
“This week could be key,” said Chris Larkin, managing director, trading and investing at E-Trade from Morgan Stanley. “If the market is going to sustain its latest breakout, it may need to avoid earnings disappointments from this week’s Big Tech lineup, get encouraging news from the Fed on interest rates, and see jobs numbers that are solid, but not too hot.”
This profit reporting season is expected to be lacklustre, with analysts forecasting a fourth drop in earnings per share for S&P 500 companies in the last five quarters. But it would be even worse without the Magnificent Seven.
Facebook’s parent company, Meta Platforms, is expected to be the single biggest contributor to growth for the overall S&P 500, according to FactSet. Nvidia is close behind, followed by Microsoft, Apple, Alphabet and Amazon.
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Companies so far this reporting season have not been getting as big a boost to their stock price as usual after topping analysts’ forecasts.
Monday kicked off with a Hong Kong court’s decision to order the liquidation of China Evergrande, the world’s most indebted property developer. Chinese markets were mixed following the ruling, with stocks rising in Hong Kong and falling in Shanghai.
Chinese authorities also made moves to make it more difficult for some investors to “short” Chinese stocks, or bet that their prices will fall. China’s stock markets have been among the world’s worst so far this year amid worries about not only its trouble property industry but also its weak economic recovery.
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