Cedears Alert: five of the Magnificent Seven present results, what does the market expect for the S&P500?

And it is that the actions of the “Magnificent Seven”—Apple, Microsoft, Nvidia, Alphabet, Amazon, Meta and Tesla—experienced a 5.7% increase in market capitalization in the 30 days ending last October 18, one month after rate reduction that was launched by the Federal Reserve (Fed), compared to a 4.4% increase in the S&P 500 index.

Nvidia, Meta and Apple led the gains, with increases of 21.7%, 7.2% and 6.5% respectively, while Tesla and Microsoft (MSFT) recorded losses of 2.9%, so what happens this week will define If the S&P 500 extends its rally or the power of these seven companies, which are the locomotive of the New York plaza, cools.

A key period begins for Wall Street

It turns out that the US stock market’s record rally could face its most critical period of the year this week, with several risks on the horizon. Much will depend on earnings reports from big tech companies, volatility in U.S. debt markets, monthly employment data for October due Friday, and the final stretch of a very close presidential election.

Large-cap tech stocks appear to be back on trend, even though the rally broadened earlier this year to include mid- and even small-cap stocks that could benefit from the Fed’s shift in interest rate cuts. . In that context, the Russell 2000 index of small cap stocks fell 3% in the week ending Friday, while the information technology sector of the S&P 500 gained 0.2%, according to FactSet data.

What the city analysts say

And the 10 largest stocks in the world are now worth together US$20.27 billioncompared to US$20.15 billion last week. Among those 10 actions are the Magnificent Seven.

The investment advisor, Gaston Lentini -in dialogue with Scope- explains that the Magnificent Seven pushed the stock market since 2023. And when analyzing the evolution of the S&P 500, the remaining 493 companies that make it up almost did not gain price.

For the strategist, it is clear that expectations for this week are highFor example, for Google, a profit of US$1.84 per share is expected, almost 20% extra if we take into consideration that it presented US$1.55 in the same quarter last year. In the case of Microsoft, the expectation is more moderate, “with an expected earnings per share of US$3.10 while last year it was US$2.99 ​​for the same quarter,” analyzes Lentini.

And he adds that although in general these companies are very well analyzed in depth by many international analysts, “volatility will be guaranteed and I suggest to readers the same as our clients, not to buy or sell the day before the results are presented.” Since the analyst believes that it is advisable to take well-informed positions, “otherwise the operation would be more similar to a bet on roulette than to an investment.”

A market at historical highs and the elections ahead

Diego Martínez BurzacoCountry Manager of Inviu, maintains that These weeks are highly anticipated by the market due to the intense activity related to the presentation of results of large technology companies. “These two weeks represent the period of greatest expectation in the balance sheet season,” the strategist shoots.

He explains that the market is currently at historical highs, driven by the notable performance of these companies, which increases the pressure so that the results presented do not disappoint expectations.

However, when analyzing the valuations of these companies through multiples, it is observed that they are at very demanding and high levels. “Therefore, It is crucial that these multiples be validated with financial results, since, otherwise, significant profit-taking could be triggered,” says Martínez Burzaco.

Cedears: which ones the market is looking at

Furthermore, it is relevant to consider that Next week will coincide with the presidential elections in the USwhich could add more volatility to the market.

About the cedars that he likes, the expert maintains that in terms of valuations, an attractive value is perceived in companies like Google and Amazonwhile Microsoft and Meta They seem to have more demanding valuations, “after having experienced a notable increase in their price.”

The Christmas bull rally

Emilse Cordobadirector of Bell Bursátil, explains to this medium that two external drivers must be added that correspond to seasonalities. The analyst remembers that it is already a common variable that is repeated and that, “From Halloween to the end of the year, the Christmas bull rally takes place“(it can happen and it is common, but not, for sure). That, added to the fact that it is also common that, in the three weeks prior to the electoral contest, there is a bullish rally.

For Córdoba, if he takes what happened with Tesla as a sample of what could happen, the market expects excellent balance sheets and shares trading higher. Well, “taking into account that Tesla is the most volatile asset of the Magnificent Seven, if it presents good results, the increase would be smaller, but assured.”

The strategist remembers that, Waiting for the results of a company in an inverted manner is not advisable for all investors. This is because, beyond expectations, the presentation of results can cause significant movements in the price of the asset, either up or down.

For Córdoba, A drop in the price of any of the “Magnificent Seven” is still an excellent purchasing opportunity, since it continues in a bullish channel. Within these assets, those that are most attractive to you (even in the medium term) They are Amazon (which is lagging behind its peers), Google (also lagging and with a very interesting “upside” in the short term in dollars) and Microsoft.

This way, The high expectation surrounding these earnings presentations, along with the presidential election backdrop, could determine whether the S&P 500 rally extends or a significant correction occurs. Therefore, it is essential that investors maintain a cautious and well-informed stance in this highly uncertain environment.