In the theater of financial discourse, few acts are as highly anticipated as the release of the tech sector behemoths’ quarterly earnings reports.
This week, the curtains will rise for those stars once again. And investors will see the latest fiscal debut from the tech titans that not only shape Silicon Valley but the contours of the global economy.
Microsoft (MSFT), Alphabet (GOOGL), Meta (META), and Amazon (AMZN) all report quarterly numbers this week.
And with Wall Street on edge about a war in the Middle East, spiking interest rates, and sticky inflationary pressures, the stakes are sky-high.
But the thing about Wall Street is that it really cares about one thing in particular: earnings.
If Big Tech delivers strong earnings this week, none of the aforementioned issues will matter. If earnings are good, stocks will rally. If not, they’ll fall.
It’s that simple.
So – will Big Tech earnings save the struggling stock market in October?
Earnings Can Turn the Market Tide
Consumer spending has proven surprisingly resilient. Thanks to sky-high interest rates, stagnant wage growth, rampant inflation, and depleted COVID-era savings, everyone thought that the consumer would roll over by now. But the labor market has remained on solid footing. People still have jobs, which means they still have incomes. And they’re still spending those incomes.
In economic slowdowns, retail sales growth usually dips into negative territory. But retail sales growth never dropped into negative territory in 2022 or ‘23. And over the past few months, it has even accelerated. Last month, retail sales rose a very impressive 4%.
With retail sales running strong, it is very likely that Amazon, Meta, and Alphabet report very strong numbers this week.
Amazon directly benefits from resilient consumer spending through its ecommerce platform. The more consumers are shopping, the more they are presumably spending on Amazon.com. And of course, that bodes very well for Amazon’s earnings.
But in fact, indirectly, Alphabet and Meta should be huge beneficiaries, too.
The more consumers are spending, the more businesses are willing to spend to advertise to those consumers. Therefore, the third quarter’s sticky consumer spending trends imply that digital ad spending trends were vigorous in Q3, too.
Meta and Alphabet are the kings of digital advertising. If consumers are spending more and brands are advertising more, then both Alphabet and Meta should be seeing their ad businesses accelerate right now.
We’re very confident in Amazon, Meta, and Alphabet’s third-quarter reports.
A Robust AI Business Should Drive Strong Fiscal Results
Meanwhile, Microsoft just announced it would spend $3.2 billion in Australia to expand its cloud computing and AI infrastructure. And that’s the biggest investment Microsoft has made in Australia in four decades.
Let me ask this: Do you make huge investments and spend a ton of money when things are going good in your life or when they’re going bad?
Obviously, humans spend more money when they’re making more money. It’s the same with businesses. Why is Microsoft making its biggest investment in four decades in Australia? Because business is good.
The company is reaping the rewards of its new suite of excellent AI products.
We think enterprise AI adoption is accelerating rapidly right now. And furthermore, we believe that many companies are adopting AI-powered tools specifically from Microsoft first.
That’s why we are equally confident in Microsoft’s third-quarter earnings report.
The Final Word on Big Tech Earnings
In short, this week’s Big Tech earnings should be very strong. If so, you can forget all about geopolitics, inflation, and the Federal Reserve. Strong earnings will drive stocks higher.
Need proof?
Just take a look at the chart below. It graphs the price of the S&P 500 (orange line) alongside its earnings (blue line). The two lines correlate nearly perfectly.
Earnings drive stocks – not wars, inflation, or interest rates.
So, if this week’s earnings are good, stocks will rally.
And a lot of investors aren’t prepared for this potential earnings-fueled rally. Investor positioning is pretty bearish right now. Lots of pundits are talking about the end of the world. This will be an “offsides” rally.
And “offsides” rallies are often the biggest.
