Big Tech earnings could trump tariffs and the Fed
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It's a pivotal week for financial markets, with $11.3 trillion worth of tech companies reporting earnings, a slew of economic data including the jobs report, a Federal Reserve meeting and a tariff deadline.
- Investor positioning suggests earnings will take center stage, as trade deals aren't moving markets and an interest rate pause is priced in.
Why it matters: This signals what could drive markets for the rest of the year: corporate earnings and interest rate guidance rather than trade deals.
By the numbers: Ahead of the huge week of earnings and economic news, the options market is pricing in the biggest implied move for August 1.
- That day marks the first chance to trade Microsoft and Meta earnings, released after the bell the night before. It also coincides with the tariff deadline and the jobs report.
Zoom in: The latest trade deals aren't moving markets much, since they're considered a removal of a headwind rather than a catalyst.
- The stock market was up just marginally off the back of the trade deals with Japan and the European Union.
What they're saying: Investors aren't just shrugging off tariff deals, they're also "pretty unperturbed about the economic reports that are coming out this week, too," Steve Sosnick, chief strategist at Interactive Brokers, told Axios.
- The Fed doesn't like to surprise investors, so the outcome of this week's central bank meeting is largely priced in, he said.
Zoom out: Meanwhile, tech and communication services stocks are carrying the weight of the entire earnings season on their shoulders.
- The tech and communication services sectors are expected to drive earnings growth this quarter, up an expected 20% year-over-year.
- Without these names, overall earnings growth would actually be negative, down 3% year-over-year.
Yes, but: Momentum in this market is so strong right now, "it's hard to say what (the market) is pricing in," Sosnick said.
- What could stop that momentum? "Big cap tech earnings," he said.
- The expectations for megacap tech names are so high, any large disappointment could potentially upset the market rally.
The bottom line: Big Tech earnings could be the largest driver of markets, not only this week, but for the foreseeable future.
