Megacap Companies Take Center Stage in Key Earnings Week as Traders Eye Bull Market Clarity

In the coming week, several iconic tech companies, collectively dubbed the "Magnificent Seven," are poised to make their earnings announcements, and this could very well steer the market back into a bullish zone. Investors are particularly optimistic that growth driven by artificial intelligence (AI) could further propel the market, despite worries about the current zenith. Also on the radar is the Federal Reserve’s January meeting, with insights on inflation scheduled for release by Friday.

Among the seven giants, four are expected to shed light on their financial health. On Wednesday, Meta Platforms, Microsoft, and Tesla are set to disclose their results, followed by Apple on Thursday. These announcements hold immense potential to influence a stock market that’s been riding new highs lately. Many are banking on President Donald Trump’s business-friendly policies, aligned with a solid economy and softening inflation, to sustain earnings momentum and justify steep valuations established over the last couple of years.

Now, if these tech behemoths exceed expectations, it could ignite an AI-driven surge, stimulating market vibrancy. However, if they falter, it might dampen momentum in a market heavily reliant on these mega-cap tech entities. Ken Mahoney, CEO of Mahoney Asset Management, succinctly captures the pulse by emphasizing the critical role of earnings. Mahoney notes the persistent draw toward growth stories, querying the skeptics who question the sustainability of last year’s growth narratives. He believes, "Valuations might be high, but the allure of impressive growth narratives still captivates investors."

Adding to the week’s allure, Trump’s Star Trek-level venture, "Stargate," has made waves. This ambitious partnership involves Oracle, SoftBank, and OpenAI, collectively committing $500 billion towards AI development infrastructure. Additionally, Microsoft’s announcement of their intent to funnel $80 billion into AI data centers by fiscal 2025 amplified enthusiasm for the tech sector.

Apple is, no doubt, in a precarious position ahead of its upcoming earnings report. Despite the general tech rally, Apple’s shares have remained subdued, declining over 14% from recent peaks and sliding 11% just this month amidst fears of underwhelming earnings. The iPhone heavyweight has faced two downgrades this week alone, and Nvidia has retaken the crown as the most valuable public company. Yet, with a market cap north of $3.3 trillion, Apple’s forthcoming results are crucial; they’ll either buoy or burden the market.

Mahoney highlights a strategic viewpoint on Apple stocks, referring to any price dip as a buying opportunity. He expresses confidence in CEO Tim Cook’s strategy of pivoting the company from hardware to a service-oriented model, recognizing the benefits of lower expectations leading into earnings season.

On another front, the anticipated December personal consumption expenditures price index will be unveiled on Friday. Investors are keen to see if inflation, on the rise by a predicted 2.6% year-over-year per FactSet, continues its upward trajectory from the previous 2.4%. Sam Stovall, CFRA Research’s chief investment strategist, suggests these data points will either consolidate market confidence or herald forthcoming hurdles.

In the broader market landscape, stocks chalked up their second consecutive weekly win on Friday. Yet, President Trump’s remarks at the World Economic Forum—urging an immediate interest rate cut—may unsettle next week’s Federal Reserve meeting, which was otherwise largely anticipated to maintain the status quo. Despite Trump’s pressing demand, the Fed is expected to showcase its independence by refraining from rate cuts. Trump’s relationship with Fed Chair Jerome Powell has always been fraught, despite Trump appointing him in 2017. Powell made it clear he wouldn’t resign at Trump’s request, as it’s "not permitted under the law," during a November press conference.

Should the Federal Reserve unexpectedly entertain a January rate cut, investors might fear overly stimulative monetary policy amidst a robust economy and supportive fiscal policies. Mahoney notes that such a move might counterintuitively raise the 10-year yield, influencing mortgage and other debts unfavorably. He adds, "I’m not sure if one of his strategies is to remove Jerome Powell, but Powell’s competent navigation through volatile times would mean such a move invites instability."

Sam Stovall from CFRA provides a dose of realpolitik by recalling lyrics from The Rolling Stones: "You can’t always get what you want."

As a new year commences, the January Barometer offers another reason for optimism. Coined by Stock Trader’s Almanac founder Yale Hirsch, the January Barometer underscores a historical trend: a strong January presages a robust year. Remarkably, major indices are witnessing strong starts; the Dow Jones Industrial Average is up over 4%, with the S&P 500 and Nasdaq advancing over 3%. Historically since WWII, a positive January in a first presidential cycle year often translated to an 18.3% S&P 500 gain, being right 91% of the time according to CFRA’s Stovall.

However, despite a potential engaging start, strategists, on average, foresee the S&P 500 ending the year merely 8% to 10% higher after surpassing 20% gains in the previous two years. Thus, a healthy January might be a short-term detriment. Chen Zhao, Alpine Macro’s chief global strategist, acknowledges strong fundamentals could drive stocks higher through year-end but cautions against current market exuberance, hinting at potential corrections looming.

Lastly, here’s a glance at the calendar for the week ahead, all times in ET:

Monday, Jan. 27

8 a.m.: Final Building Permits (December)
8:30 a.m.: Chicago Fed National Activity Index (December)
10 a.m.: New Home Sales (December)
10:30 a.m.: Dallas Fed Index (January)
Earnings: AT&T, Nucor

Tuesday, Jan. 28

8:30 a.m.: Durable Orders (December)
9 a.m.: FHFA Home Price Index (November)
10 a.m.: Consumer Confidence (January)
10 a.m.: Richmond Fed Index (January)
Earnings: Starbucks, Boeing, Lockheed Martin, Royal Caribbean, Kimberly-Clark, GM, RTX, Synchrony Financial

Wednesday, Jan. 29

2 p.m.: FOMC Meeting
2 p.m.: Fed Funds Target Upper Bound
Earnings: ServiceNow, IBM, Meta Platforms, Lam Research, Western Digital, Tesla, Microsoft, Hess, Corning, T-Mobile, Norfolk Southern, Raymond James Financial, ADP

Thursday, Jan. 30

8:30 a.m.: Continuing Jobless Claims
8:30 a.m.: GDP first preliminary (Q4)
8:30 a.m.: Initial Claims
10 a.m.: Pending Home Sales (December)
Earnings: Baker Hughes, Apple, Visa, Deckers Outdoor, Intel, PPG Industries, KLA, Sherwin-Williams, Altria Group, Comcast, Southwest Airlines, Quest Diagnostics, Valero, PulteGroup, Caterpillar, UPS, Thermo Fisher, Tractor Supply, Northrop Grumman, Mastercard, Blackstone, L3Harris Technologies

Friday, Jan. 31