Big Tech Profits Are About to Determine Market Direction – MarketWatch | Region & Cash

Just five companies control nearly a quarter of the S&P 500 index’s market cap, and they are all set to report gains this week that could set the market’s direction for the weeks or months to come.

As Big Tech – Google parent company Alphabet Inc. GOOGL
WELL,
Amazon.com Inc. AMZN,
Apple Inc. AAPL,
Facebook parent company Meta Platforms Inc. META
and Microsoft Corp. MSFT
– Ready to get in touch, for the first time there are serious doubts about her near future. All five have signaled they are cutting costs or plan to do so soon, as reported by MarketWatch’s Jon Swartz.

Amazon tore the bandage off three months ago, and it looks like some of its big-tech cohorts will do the same this earnings season. Apple is reportedly planning cost cuts for the next year while Microsoft is cutting vacancies and making smaller layoffs. Meta chief executive Mark Zuckerberg told employees on the last day of the second quarter that they are facing one of the “worst downturns we’ve seen in recent history,” and Alphabet CEO Sundar Pichai warned employees just days later after that before closing the adjustment to slow down quarter. Last week’s results from Snap Inc. SNAP
and Twitter Inc. TWTR
show concerns about the digital advertising business are well founded.

Meta Earnings Preview: Facebook is caught in a storm of uncertainty, and the fake “firsts” are showing up

Even an early warning from Microsoft about its earnings and the knowledge that Amazon is already cutting costs may not be enough to really prepare Wall Street for what might be to come. One area that could make big waves is a slowdown in cloud computing growth, according to Therese Poletti, with one analyst telling her “people are going to freak out.”

Any big move for these five companies would have a big impact on the market. With a combined value of about $7.5 trillion, the five companies account for about 23% of the total market cap of the S&P 500 index SPX, despite the declines they’ve already seen this year,
according to the Dow Jones Market Data Group.

The group’s profits and revenues have rocked the entire market in recent years as the COVID-19 pandemic weighed on its balance sheets. Overall, the quintet generated over $320 billion in profit last year, on sales of over $1.4 trillion, which according to the World Bank would rank 13th in gross domestic product as a nation, just behind Brazil and off Australia.

This year will be a tough comparison to that performance, especially after Amazon reported a nearly $4 billion loss in the first quarter. And those companies’ cost-cutting will have an impact on the larger tech economy. The real concern in Silicon Valley and Wall Street is that a domino effect will kick in – big tech drives down costs and hurts the smaller tech companies that rely on them, which in turn go under, or at least see costs like cloud computing, cloud software, hardware, and more, leading to more pain across the industry.

Take Kornit Digital Ltd for example. KRNT,
which Wall Street earlier this month warned it would miss revenue guidance by more than 30%, with executives explaining that “some of our clients are operating at excess capacity built up during the two-year pandemic period.” Kornit’s biggest customer for its print-on-demand apparel services and machines: Amazon, which accounts for more than a quarter of the company’s sales. While the company didn’t detail planned cost cuts in that announcement, executives were able to detail such plans when they reported full results in August.

Any hints of imminent sweeping cost cuts are included in the forecasts in lieu of the actual numbers, and the forecasts have been scary so far: Out of 11 S&P 500 companies that have issued earnings forecasts so far this season, 10 are below expectations, FactSet Senior That reported Earnings analyst John Butters on Friday. Apple hasn’t led the way during the pandemic, and Google executives aren’t providing any financial guidance. So instead, watch for color on what’s in store for these companies.

Alphabet Earnings Preview: Google might be the safest digital advertising giant, but that’s not saying much right now

Alphabet will report Tuesday afternoon, followed by Google and Microsoft on Wednesday, and Apple and Amazon on Thursday. They’ll be headlining the busiest week of earnings season yet, although they’ll be joined by many more.

This week in the result

About 35% of the S&P 500, 175 companies, are expected to report next week, and 40% of the 30 Dow Jones Industrial Average DJIA
Components are on the list. In addition to Apple and Microsoft, Dow’s components also include Coca-Cola Co. KO,
3M Co.MMM,
McDonald’s Corp. MCD
and Visa Inc. V
on Tuesday; Boeing Co. BA
On Wednesday; Honeywell Intl. Inc. HON,
Intel Corp. INTC
and Merck & Co. Inc. MRK
on Thursday; and Chevron Corp. CVX
and Procter & Gamble Co.PG
at the end of the week on Friday.

Aside from Big Tech, here are some other reports and figures that will matter for the market.

The numbers to watch

Oil Company Profits: The fate of corporate profit margins, which hit a record high in 2021 more than a point higher than before, rests with Big Oil. With Russian oil largely cut off during the invasion of Ukraine, American oil giants are getting windfall profits, which came in at Exxon Corp on Friday morning. XOM will be explained in detail
and Chevron both report. Exxon has already announced about $2.5 billion in incremental earnings for the quarter, while analysts at Chevron are expecting $10 billion in overall quarterly earnings. And expectations are only rising — Butters noted on Friday that expectations for earnings in the energy sector have risen to 265.3% from 219.8% since the start of the earnings season, while expectations for revenue growth have risen from 44.7% to 55 .9% up.

Full Earnings Preview: Intel needs a strong second half to meet guidance, but the end of the PC boom makes success seem unlikely

Intel margins: Intel CEO Pat Gelsinger has decided to sacrifice some of the chipmaker’s margins as it tries to build a more robust manufacturing regime, but how much he’s willing to cut is the big question on Wall Street. In addition to the financial results, Intel could celebrate a big win in Washington DC this week as Congress seeks to finalize funding for US chip manufacturing that Intel and Gelsinger have been pushing for in recent months.

The calls that you can enter in your calendar

Visa and Mastercard: Amid legitimate recession fears, American Express Co. AXP
Some analysts reassured consumer spending on Friday, as Chief Financial Officer Jeff Campbell told MarketWatch that customers are showing “no signs of stress from a credit perspective.” However, AmEx customers tend to have higher incomes, as Visa Tuesday afternoon and Mastercard Inc. MA report
On Thursday morning, their executives should provide a more complete picture of consumer spending in the second quarter.

Shopify: E-commerce has been in a downturn in the third year of the COVID-19 pandemic, and while Amazon is the king of e-commerce, Shopify Inc. is SHOP
has its hands in many more pies as the backbone of most endeavors outside of Amazon’s gargantuan marketplace. Ever since Shopify detailed the decline in first-quarter earnings, it has jumped on the stock-split bandwagon to keep its founder in check, so now it has to wait for that founder, CEO Tobi Lütke, to reassure investors who which have sent shares down 73.4% so far this year.

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