The Fate of the Market Will Be Determined by Reaction to Magnificent 7 Earnings
After the poor response to good Netflix earnings, there is growing concern that even strong reports won’t be sufficient.
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A mild oversold bounce continues Tuesday morning, and market participants await an onslaught of earnings reports. About 180 companies will report this week, but the fate of the market lies primarily in the Magnificent Seven names.
Tesla TSLA will kick things off with its report Tuesday night, but it is no longer a key leader and won’t have much impact on the broader market, regardless of whether it is a good report or not. A good report may help sentiment, but it won’t be indicative of AI or semiconductor strength.
Meta META is due on Wednesday night and will be followed by Microsoft MSFT and Alphabet (GOOGL) on Thursday. These three reports will help determine if the current corrective action goes deeper or if there will be a quick recovery.
After the poor response to good Netflix NFLX earnings, there is growing concern that even strong reports won’t be sufficient. The market expects strong numbers, but the worry is that it is already priced in, and the likelihood is that the torrid rate of growth will cool.
Earnings come with the backdrop of fears that inflation is ticking higher and that there is the potential for no rate cuts this year. Those worries have been mostly offset for much of the year by economic strength, but if big-cap technology names start to show slower growth, then we will see the ugly word "stagflation."
Technically, the market enjoyed a routine oversold bounce on Monday, with small-caps showing very good relative strength for the second day in a row. There is no reason to expect that the Nasdaq 100 QQQ will see a V-shaped recovery at this point, but the catalyst won’t hit until Wednesday night when Meta reports.
The big positive right now is that there is interest in the smaller stocks that have suffered for so long, but the fate of the indexes lies with semiconductors and the Magnificent Seven. We will tread water until that news is released.
At the time of publication, Rev Shark had no positions in any securities mentioned.
