People see themselves on Wall Street in front of the New York Stock Exchange (NYSE) in New York, USA, March 19, 2021. REUTERS / Brendan McDermid / File Photo
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NEW YORK, April 22 (Reuters) – Investors hope a flood of quarterly US reports next week, including those of the megacapnet titans, will confirm solid earnings prospects for corporate America and boost stock arguments after a difficult start to the year. .
Nearly 180 S&P 500 companies, costing about half the market value of the benchmark index, are due to report next week. These include the four largest companies in the US by market capitalization: Apple (AAPL.O), Microsoft (MSFT.O), Amazon (AMZN.O) and Google’s parent Alphabet (GOOGL.O).
The latest round of profits comes amid the Federal Reserve hawk and boom yields, which have raised concerns about whether politicians will hurt the economy as they battle the worst inflation in nearly four decades. The S&P 500 fell in April to 10.4 percent so far this year after a sharp sell-off on Friday. Read more
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With stock-based monetary policy, sublime investors rely on solid corporate prospects to support markets, increasing pressure on companies to report solid end results and forecasts. According to Refinitiv IBES, S&P 500 companies are expected to increase their profits by 9% this year.
“Probably the strongest argument you can make about owning stocks at the moment is that corporate profits are still very stable,” said Charlie Ryan, portfolio manager at Evercore Wealth Management. “Any deterioration in the growth of corporate profits and the pace of this would scare the market.
So far, investors have been quick to punish stocks of companies with disappointing results, especially those with expensive valuations. One recent victim was Netflix (NFLX.O), whose shares fell about 35% in a single session after the streaming giant saw its first drop in subscribers in a decade.
Although shares have fallen since the beginning of the year, the S&P 500 is still trading about 19 times the projected earnings, above its long-term average of 15.5 times.
“We are in a show me environment. I think next week is crucial for the names of technology and high growth, especially for higher-value stocks, “said Anthony Saglimbene, global market strategist at Ameriprise.” It’s better to prove that these multipliers deserve exactly now. “
Investors will focus on the results of Apple, Microsoft, Amazon and Alphabet, which together have a market value of about $ 8 trillion and account for one-fifth of the weight of the S&P 500. All these megacap stocks have fallen this year, with Apple falling by about 9%, Amazon fell 13.4%, Alphabet fell 17.4% and Microsoft fell 18.5%.
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The expectations for the profits of these companies are lower for the quarter ended in March. Microsoft is expected to increase its adjusted earnings per share by 12% compared to the previous period, Apple by 2%, while Alphabet reported a decline of 0.7% and Amazon reported a decline of 49%, according to Refinitiv. Overall, S&P 500 companies are expected to increase their quarterly profit by 7.3%.
“Expectations are low, but that doesn’t mean it doesn’t matter,” said James Reagan, director of wealth management research at DA Davidson. “If we’re going to reach that 9% (profit growth) for the year, or even better than that, it’s hard to imagine that we’re going to do that without having better-than-expected profits from megacap companies.”
In addition to the first four companies, results are expected next week from a number of companies, including Facebook owner Meta Platforms (FB.O), payment companies Visa (VN) and Mastercard (MA.N), and large oil companies Chevron (CVX.N.) ) and Exxon Mobil (XOM.N) and consumer companies Coca-Cola (KO.N) and Pepsico (PEP.O).
Beyond the end results and financial prospects, investors will also seek to see if companies can maintain their profit margins as inflation threatens to increase their investment costs. S&P 500 companies need to see net income margins fall to about 13% in 2022 from a record 13.4% last year, JPMorgan said in a note this week.
Of the 99 S&P 500 companies that have reported so far, 77.8% have reported gains above analysts’ expectations, Refinitiv IBES said. This percentage is above the typical 66% rate for the quarter since 1994, but below 83% in the last four quarters.
“The stock market … is waiting for this flow of profits,” Saglimbene said. The market is “indebted to what companies say for the second quarter and beyond.”
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Report by Lewis Krauskopf; Edited by Ira Yosebashvili and Chris Reese
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