As earnings season goes into full swing, bullish investors hope solid corporate results will stem a tumble in technology shares that has cooled this year’s U.S. stock rally. The S&P 500’s technology sector has dropped nearly 6% in just over a week, shedding about $900 billion in market value as growing expectations of interest rate cuts and a second Donald Trump presidency draw money away from this year’s winners and into sectors that have languished in 2024.
The S&P 500 has fared somewhat better, losing 1.6% in just over a week, with declines in tech partly offset by sharp gains in financials, industrials, and small caps. The benchmark index is up more than 16% so far this year.
Second-quarter earnings could help tech reclaim the spotlight. Tesla (NASDAQ) and Google-parent Alphabet (NASDAQ) both report on Tuesday, kicking off results from the “Magnificent Seven” megacap group of stocks that have propelled markets since early 2023. Microsoft (NASDAQ) and Apple (NASDAQ) are set to report the following week.
Strong results from the market’s leaders could assuage some of the worries that have recently dogged megacaps, including concerns over stretched valuations and an advance highlighted by eye-watering gains in stocks such as Nvidia (NASDAQ), which is up 145% this year despite a recent dip.
On the other hand, signs that profits are flagging or AI-related spending is less than anticipated would test the narrative of tech dominance that has boosted stocks this year. That could turn quickly into a problem for broader markets: Alphabet, Tesla, Amazon.com (NASDAQ), Microsoft, Meta Platforms (NASDAQ), Apple, and Nvidia have accounted for around 60% of the S&P 500’s gain this year.
Anthony Saglimbene, chief market strategist at Ameriprise Financial (NYSE), believes the upcoming earnings reports could ease the selling pressure on Big Tech. He advises investors to use pullbacks in these areas as an opportunity to allocate on a longer-term basis.
