Pivotal week for world's most valuable companies 

More than 500 major companies worldwide will reveal how they fared this quarter, and how they expect the coming months to shape up.

It’s shaping up to be a pivotal week for global stocks, as companies worth trillions of dollars gear up to report quarterly earnings. As Netflix and Tesla showed last week, the pressure is on — to deliver or face a sharp selloff.

More than 500 major companies worldwide will reveal how they fared this quarter, and how they expect the coming months to shape up. In this busiest week of the season, earnings reports will flow from the likes of Microsoft, Google-parent, LVMH, Banco Santander, Volkswagen, Airbus, Sanofi, and Samsung Electronics. 

For Morgan Stanley’s Michael Wilson, cost-cutting alone won’t be enough to propel stocks further. Pricey valuations mean “stocks will now need more confirmation of the upturn in growth that consensus expects in the second half,” he told clients in a note.

Wilson, known for his bearish views on US equities, says investors are becoming harder to impress. S&P 500 earnings have beaten estimates at an above-average rate so far this season, yet only 42% of the stocks had a positive post-earnings reaction, down from 49% in the previous quarter, Morgan Stanley analysis shows.

“This aligns with our thesis that ‘better-than-feared’ results likely will not be sufficient to materially boost performance post reporting,” Mr Wilson added.

Earnings

Last week, Netflix and Tesla, the first two Big Tech mega-caps to report, provided a glimpse of how pumped-up markets can react to shortfalls in earnings or guidance.

Both companies had market-beating gains this year before Netflix’s third-quarter sales guidance undershot estimates and Tesla warned of further profit hits. The slump in their shares also set in motion a wider selloff that shaved more than $400bn (€360bn) from the Nasdaq 100’s market capitalisation in a single day.  

James Athey, investment director at Abrdn, forecasts a significant proportion of earnings to beat estimates, but only because companies have succeeded in lowering expectations. “That alone may not be enough to satisfy the most elevated valuations out there,” he said.

“If guidance shows any sign of concern, that could be enough for investors to flee those stocks.” The stakes are highest for heavyweight US technology firms, which have fueled the Nasdaq 100’s 41% gain this year. The so-called magnificent seven — Apple, Amazon,  Nvidia, Facebook-parent Meta Platforms, Microsoft, Alphabet and Tesla — now trade at a record premium to the bottom 493 stocks in the S&P 500. 

Bloomberg