NEW YORK: The rally on Wall Street faces a fresh test this week with a flood of earnings reports from major US companies, including the tech and internet behemoths that have recently retaken leadership of the market.
More than one-third of the S&P 500 is set to report quarterly results this week, headlined by Apple, Microsoft, Amazon and Google-parent Alphabet , the four largest US companies by market value. Those stocks have gained between 5-7 percent so far this month, as of Thursday’s close, while the S&P 500 had climbed just 1.6 percent. The S&P 500 equal-weight index, a barometer of the average stock, had fallen 0.2 percent.
“The expectation level for these names is quite a bit higher than it was a month ago given the stock performance, so I think they are going to have to deliver,” said Walter Todd, chief investment officer with Greenwood Capital in South Carolina. “It’s a question of looking forward: Can they live up to the expectations that the stock prices reflect?”
The strength in those large stocks has come amid concerns about a slowing US economic recovery that have helped pushed down benchmark Treasury yields this week to their lowest levels since February, before
rebounding some.
As the delta variant of COVID-19 sweeps through the US, the economic outlook will be in sharp focus at the Federal Reserve’s meeting on Tuesday and Wednesday.
Though the S&P 500 stands at record levels after rallying more than 95 percent from its March 2020 lows, stocks have endured more volatility in recent days as investors seek to reconcile bond market signals about the economic outlook.
Indeed, below the surface, stock performance indicates some doubts about economic strength. Growth stocks have outperformed economically sensitive value stocks in July, while smaller stocks, which tend to have more exposure to the US economy, have also lagged, with the small-cap Russell 2000 down over 4 percent so far this month.
“Investors have sought safety in those megacaps, particularly the megacap tech companies, which are expected to continue to deliver very strong growth,” said Tim Skiendzielewski, investment director at Aberdeen Standard Investments in Philadelphia.
