The first major Big Tech earnings hit the wires next week, after very mixed performance recently. Megacap tech stocks have dominated both the Nasdaq 100 and the benchmark S&P 500 index’s gains over the past year. But worries about the narrow breadth of market gains have been an enduring theme. We’re now seeing a rotation out of the “Magnificent Seven” stocks and the tech sector in general that has slightly surprised markets in its strength, with investors jumping into small cap companies and other previously unloved sectors. Falling inflation and a more broad-based earnings recovery has sparked the shift, along with a global sell-off in semiconductor companies.
That means there will be much focus on Google and Tesla’s results on Tuesday after the closing US bell. If the former beats estimates, it will mark the sixth straight quarter of exceeding EPS expectations. Ongoing tailwinds from robust advertising spending and growth in Google Cloud fuelled by AI advancements are expected to underpin the figures. Wall Street sees Tesla posting a year-over-year decline in earnings on higher revenues. Elon Musk’s EV maker has lost market share to rivals in its domestic market. The story is similar in other countries, especially in China where BYD are competing hard. The stock has rallied around 40% recently with support around $240 and resistance at the recent high at $271.
It’s a busy week of data too, with the US core PCE deflator the key risk event. The data is expected to endorse the fully priced September Fed rate cut. We are likely to be looking at three decimal places too, as is the norm currently. The Bank of Canada is likely to cut rates again, with the latest Monetary Policy Report acting as a guide to how policymakers expect the economy to perform going forward.
Markets will also be watching if President Biden steps out of the election race, which could mildly negative for the dollar. That is because the Democrats could then have a better chance of winning the Senate which might then constrain a President Trump. That said, there does remain some confusion as to whether Trump 2.0 would be good or bad for the greenback. He isn’t happy with yen and yuan weakness but tariffs and tax cuts are inflationary which support the buck.
