Just five companies control nearly a quarter of the S&P 500’s market capitalization, and all are set to report earnings this week that could determine the market’s direction in the coming weeks or months.
Amazon tore off the Band-Aid three months ago, and it looks like some of its Big Tech cohorts may look to do the same this earnings season. Apple has reportedly planned cost cuts for next year, while Microsoft is closing open positions and making small layoffs. Meta CEO Mark Zuckerberg told employees on the last day of the second quarter that they were facing one of the “worst downturns we’ve seen in recent history,” and Alphabet CEO Sundar Pichai , warned employees to slow hiring just days after the quarter closed. Last week’s results for Snap Inc. SNAP, +0.10% and Twitter Inc. TWTR, -1.48% show concerns about the digital advertising business.
Meta earnings preview: Facebook enters a storm of uncertainty and the wrong ‘firsts’ appear
Even an early warning from Microsoft about its earnings and the knowledge that Amazon is already cutting costs may not be enough to really prepare Wall Street for what may come. One area that could result in a major influence is the slowing growth of cloud computing, as Therese Poletti opined, with one analyst telling her that “people are going to be scared.”
Any major move for these five companies would have major market effects. With a collective value of roughly $7.5 trillion, despite declines already this year, the five companies account for about 23% of the total market capitalization of the S&P 500 SPX , +0.13%, according to the Dow Jones Market Data Group.
The group’s earnings and revenues have taken a hit across the market in recent years as the COVID-19 pandemic hit its balance sheets. Collectively, the quintet made profits that topped $320 billion last year, with sales topping $1.4 trillion, which would rank 13th in gross domestic product as a nation, just behind behind Brazil and ahead of Australia, according to World Bank figures.
This year will be a tough comparison to that performance, especially after Amazon reported a loss of nearly $4 billion in the first quarter. And the cost reduction of these companies will have an effect on the larger technology economy. The real concern in Silicon Valley and Wall Street is that a domino effect will occur: Big Tech drives down costs, hurting smaller tech companies that depend on them, which in turn drive down or at least drive down costs such as cloud computing , cloud software, hardware and more, causing more pain across the industry.
Take, for example, Kornit Digital Ltd. KRNT, -1.83% , which warned Wall Street earlier this month that it would miss revenue projections by more than 30%, with executives explaining that “some of our clients are working with excess capacity built throughout the period.” the two-year pandemic period.” Kornit’s biggest customer for its print-on-demand apparel services and machinery: Amazon, which accounts for more than a quarter of the company’s revenue. While the company doesn’t detailed no planned cost cuts in this announcement, executives could detail those plans when they report full results in August.
Any hint of widespread cost-cutting will be included in forecasts rather than actual numbers, and forecasts have been dire so far: Of the 11 S&P 500 companies offering an earnings forecast so far this season, 10 fell short of expectations, FactSet Senior. Earnings analyst John Butters reported on Friday. Apple hasn’t been leading during the pandemic, and Google executives aren’t providing any kind of financial forecast, so look for color on what’s ahead for these companies.
Alphabet earnings preview: Google may be the safest of the digital advertising giants, but that’s not saying much right now
Alphabet will report on Tuesday afternoon, followed by Google and Microsoft on Wednesday and Apple and Amazon on Thursday. They’ll headline the busiest week of the earnings season so far, though they’ll be joined by many more.
This week in earnings
About 35% of the S&P 500, 175 companies, are expected to report in the coming week, and 40% of the constituents of the 30 Dow Jones Industrial Average DJIA, +0.28% are on the record. In addition to Apple and Microsoft, Dow component reports include Coca-Cola Co. KO, +1.09%, 3M Co. MMM, -0.01% McDonald’s Corp. MCD, -1.33% and Visa Inc. V, +0.27% Tuesday. ; Boeing Co. BA, -0.90% Wednesday; Honeywell Intl. Inc. HON, -0.12% Intel Corp. INTC, -0.10% and Merck & Co. Inc. MRK, +0.43% Thursday; and Chevron Corp. CVX, +3.04% and Procter & Gamble Co. PG, +0.69% to close the week on Friday.
In addition to Big Tech, here are other reports and numbers that will be important to the market.
The numbers to see
Oil company profits: The fate of corporate profit margins, which hit a record more than a point higher than previously seen in 2021, rests with Big Oil. With Russian oil largely cut off during the invasion of Ukraine, US oil giants are reaping windfall profits, which will be detailed Friday morning when Exxon Corp. XOM, +3.32% and Chevron report. Exxon has already disclosed about $2.5 billion in additional earnings for the quarter, while analysts expect $10 billion in total quarterly profit for Chevron. And expectations are only rising: Butters noted on Friday that expectations for earnings in the energy sector have jumped from 219.8% growth to 265.3% since earnings season began, while expectations for growth of income have increased to 55.9% from 44.7%.
Full earnings preview: Intel needs big second half to hit forecast, but end of PC boom makes success look unlikely
Intel margins: Intel CEO Pat Gelsinger has decided to sacrifice a bit on the chipmaker’s margins as he tries to build a stronger manufacturing regime, but the big question on Wall Street is how much he’s willing to cut. In addition to the financial results, Intel may be celebrating a big win in Washington DC this week as Congress tries to close funding for US chip manufacturing that Intel and Gelsinger have been pushing for in recent months.
Calls to put on your calendar
Visa and Mastercard: Amid legitimate fears of a recession, American Express Co. AXP, +0.48% eased the minds of some analysts about consumer spending on Friday, with CFO Jeff Campbell telling MarketWatch that customers are “showing no sign of a head.” stress from a credit perspective.” However, AmEx customers tend to have higher incomes, so when Visa reports Tuesday afternoon and Mastercard Inc. MA, +0.06% Thursday morning, their executives should provide a more complete picture of consumer spending in the second quarter.
Shopify: E-commerce has been down in the third year of the COVID-19 pandemic, and while Amazon is the king of e-commerce, Shopify Inc. SHOP, -1.71% has its hands in a lot more pie as the backbone of most efforts outside of Amazon’s enormous marketplace. Since detailing its first-quarter earnings decline, Shopify has jumped on the stock split train to maintain control of its founder, so that founder, CEO Tobi Lütke, will now be looked to to calm the investors who have lowered the shares 73.4. % so far this year.