A very busy fortnight

Earnings season has really stepped up a couple of gears this week with five members of the ‘Magnificent Seven’ set to report.

This is such an important time for investors as these five companies have a combined market capitalisation of over $12 trillion.

Together they represent around 25%, or a full quarter, of the S&P 500. And that’s not including NVIDIA which has a market cap just short of $3.5 trillion and reports on 20th November.

Or Tesla, which reported last week and is currently valued at $810 billion.

Put together, all these tech giants have dominated the investment world for many years now, and it’s fair to say that where these stocks go, others follow.

On Tuesday night, Alphabet (owner of Google and YouTube) soared over 7% after it reported its latest numbers.

One key metric which gave it a boost was a 35% year-on-year increase in revenue growth in its cloud computing division.

Wednesday brings updates from Microsoft and Meta Platforms (formerly Facebook) while Apple and Amazon report on Thursday.

Back on Friday 25th October, FactSet calculated that 37% of S&P 500 constituents had reported so far.

Of those, 75% beat earnings expectations while 59% did so on revenues. With the plethora of earnings reports due this week, we’ll soon see if there’s much change in the numbers.

FactSet also calculated that the forward 12-month P/E was 21.7, which is above both the five and ten-year averages, but little-changed from the last two quarters. And there’s more… Of course, it’s not just tech earnings that feature this week.

There are plenty of big old blue chips reporting as well.

Aside from this week’s earnings, investors are also holding their collective breath as they look ahead to the US Presidential Election on Tuesday 5th November, and a Federal Reserve monetary policy meeting just two days later.

But first things first.

Before this there are two important updates which provide a direct measure of how well the Fed is doing in holding to its dual mandate, that is, maximising employment and maintaining price stability.

Core PCE, released on Halloween, is the Fed’s preferred inflation measure.

This has been creeping higher over the last few months.

Is this a sign that inflation isn’t, as the Fed insists, back on a sustainable path to its 2% target? Meanwhile, this Friday sees the latest update on Non-Farm Payrolls.

These dropped sharply over the summer, and were blamed for the Fed panicking and cutting its key Fed Funds rate by 50 basis points in September, rather than 25 as initially expected.

The probability of a 25 basis point rate cut in November is pretty much 100%.

But should inflation come in hot, and payrolls jump, then the probability of another cut in December could fall to zero.

Meanwhile, when it comes to the Presidential Election, Trump appears to have the positive momentum.

According to recent polls, he now has narrow leads in all seven swing states.

But these leads are well within the accepted margin of error.

That’s why the race remains a coin-toss, and volatility remains elevated.

(David Morrison is a Senior Market Analyst at Trade Nation. Views are his own.)