Alphabet and Apple’s results could test recent rally in stocks

An avalanche of earnings is coming in the coming week that could put recent stock market gains to the test.

Apple, Microsoft, Alphabet, Facebook and Amazon – the largest large-cap techs – are among the 30% of S&P 500 companies reporting. A third of the Dow also publishes results, including Caterpillar, Coca-Cola, Merck, Boeing and McDonald’s.

“Next week is the real test,” said Lori Calvasina, head of US equity strategy at RBC. “We are getting a little bit in all areas.”

Of the companies that have already reported, nearly 84% have exceeded estimates. Profits so far are expected to be up 34.8% from a year ago, based on actual reports and estimates, according to I / B / E / S data from Refinitiv.

“Tug of war between good and bad earnings reports has landed in favor of the market, with S&P hitting record high [Thursday]. That could run into trouble next week, ”said Art Hogan, chief market strategist at National Securities. “We could finally see cracks in the results season. “

The S&P 500 and the Dow Jones Industrial Average set new highs this week, and the indices have strong gains for the week. Some strategists see the return to these highs as a signal that the market is on track for a year-end rally. The Nasdaq Composite was also higher for the week, but was down nearly 1% on Friday as tech stocks fell.

“I think we’re going to learn a lot from this reporting season,” Calvasina said. “So far everything is fine. Better than expected, with no change in underlying demand. Companies are still doing mostly. Investors are punishing companies that are not, but they are not punishing the whole market. The market seems very rational right now. “

For example, Intel shares were given a rough ride, falling more than 11% on Friday, after the company’s sales beat expectations. Intel has warned that an industry-wide component shortage is hurting its PC chip business. But other semiconductor stocks weren’t pulled down on the downside. The VanEck Semiconductor ETF lost around 0.5%.

But Snap sent a warning to the entire industry on Thursday when its quarterly earnings exceeded expectations. The company reported that Apple’s privacy changes introduced earlier this year affected its advertising business. The company also said advertisers were holding back due to supply chain disruptions and labor shortages.

Facebook’s earnings on Monday will be closely watched for any similar comments, as will Alphabet and Twitter’s reports on Tuesday. All three stocks fell on Friday. Snap plunged nearly 25%. Facebook has lost more than 5%.

“Facebook was the most broken name. It had the Instagram problem. It had the kids problem. It struggled to increase after profit. It will be interesting to see if all of these issues are taken into account or if it goes even lower, ”said Scott Redler, strategic director of T3Live.com.

Redler said the news from Snap was a big surprise, as marketers viewed social media as immune to supply chain issues. Even though social media was under overall pressure on Friday, he said stocks may have recently been able to diverge across sectors.

“Tesla was able to reach a new high, and Netflix is ​​at an all time high. Every group has winners and losers, but overall turnout is better than it has been in a while. Five stocks are not pushing the S&P to all-time highs, ”he said. “It’s a bunch of stocks across all sectors.”

Traders are now watching the Russell 2000 as a breakout of small caps would be positive for the overall market, he said. Redler trades the iShares Russell 2000 ETF (IWM) which was just under $ 227 on Friday. “If the IWM breaks the $ 230 to $ 234 area, it could be a sign of increased risk at the end of the year,” he said.

Redler said the market could be challenged in the coming week. “You just had a big 10 day progression. You would think there will be some digestion,” he said. “I don’t want to chase the market here. I feel like we could rest a bit next week. If it could digest here and we could get individual stock movements, that would be healthier than the trade in pain, which is directly. “

There are some important economic reports in the coming week, including durable goods on Wednesday; Third-quarter GDP on Thursday and personal consumption spending on Friday. Friday’s data includes the PCE deflator, the preferred inflation indicator monitored by the Federal Reserve.

Higher interest rates

The closely watched 10-year Treasury yield continued to climb last week, closing at 1.70%. Market pros are watching to see if the yield hits 1.74%, the March closing high, and if that will start to worry stock investors. The 10-year yield hit this year’s intraday high of 1.776% on March 30.

“I would say over the next couple of weeks we may test it out, but I’d be a little surprised at this point if it breaks through in the long term,” said John Briggs of NatWest Markets. He noted that yields have risen as investors now expect the Federal Reserve to raise interest rates next year and the market anticipates more inflation.

“I feel like people are more interested in buying here than selling,” he said. Bond yields move in the opposite direction to price. It could be a busy week in the market, as investors adjust for the end of the month

Briggs notes that the front end, or the yield on 2-year notes, has moved faster than the long term. He said this reflects the market’s heightened expectation for rate hikes next year, with two hikes expected by the market in the second half of the year.

Calendar for the upcoming week

On Monday

Earnings: Facebook, Restaurant Brands, Otis Worldwide, Kimberly-Clark, Owens-Illinois, HSBC, TrueBlue

Tuesday

Earnings: Alphabet, Microsoft, Visa, Advanced Micro Devices, Texas Instruments, Twitter, Chubb, 3M, General Electric, Robinhood, Eli Lilly, UPS, Novartis, JetBlue, Lockheed Martin, Raytheon, Archer Daniels Midland, Sherwin-Williams, Invesco, Hasbro, Boston Properties, Teradyne, Fortune Brands, Hawaiian Holdings, NCR, Boyd Gaming

9:00 a.m. S & P / Case-Shiller House Prices

9:00 am FHFA house prices

10:00 am Sale of new homes

10:00 am Consumer confidence

Wednesday

Earnings: Coca-Cola, McDonald’s, Boeing, General Motors, Ford, Bristol-Myers Squibb, Kraft Heinz, Norfolk Southern, Glaxo SmithKline, General Dynamics, Brink’s, Automatic Data, CME Group, International Paper, Penske Auto Group, eBay, Cognizant, Additional storage space, KLA Corp, Aflac, Harley-Davidson, Flex, Suncor, BioMarin, Community Health Systems, iRobot

8:30 am Durable goods

8:30 am Advanced economic indicators

Thursday

Earnings: Apple, Amazon, Caterpillar, Comcast, Merck, Northrop Grumman, Altria, Intercontinental Exchange, Sirius XM, Yum Brands, American Tower, Gilead Sciences, Starbucks, Molson Coors, T. Rowe Price, Airbus, Anheuser-Busch InBev, Sanofi, STMicroelectronics, Volkswagen, Royal Dutch Shell, Stanley Black & Decker, AllianceBernstein, Check Point Software, Brunswick, Oshkosh

8:30 am Unemployment claims

8:30 am: advance of real GDP in Q3

10:00 a.m. Pending door-to-door sales

Friday

Earnings: Chevron, AbbVie, Colgate-Palmolive, Lazard, Booz Allen Hamilton, Weyerhaeuser, Church and Dwight, CBOE Global Markets, Newell Brands, WW Grainger, Cerner, Aon, Charter Communications, Phillips 66, Daimler, Nomura, Eni, BNP Paribas

8:30 a.m. Personal income / expenses

8:30 a.m. Cost of employment index Q3

9:45 am Chicago PMI

10:00 am Consumer sentiment