Entering Earnings Season 'M7', Will the US Stock Market Rebound... "Q1 Profit Up 38%"

This Week's Earnings Reports from Tesla, Meta, MS
BI "M7 Profit Up 37.5% YoY"

Starting this week, the earnings season has begun for the 'Magnificent 7 (NVIDIA, Amazon, Meta, Alphabet, Microsoft (MS), Apple, Tesla),' with forecasts indicating that their first-quarter profits this year will increase by nearly 40%. Attention is focused on whether the volatile New York stock market, which has seen increased fluctuations following Federal Reserve (Fed) Chair Jerome Powell's remarks last week suggesting a delay in interest rate cuts, can find an opportunity for a rebound through the upcoming big tech (large information technology companies) earnings announcements starting this week.

According to Bloomberg Intelligence (BI) on the 21st (local time), the first-quarter profits of the Magnificent 7 are expected to increase by 37.5% year-over-year. This significantly surpasses the earnings growth forecast of 2.4% for all companies included in the S&P 500 index.

Among the Magnificent 7, the 'AI superstar' NVIDIA is expected to lead earnings growth with a 404.8% increase in the first quarter. Following are Amazon with 149.1%, Meta with 98.7%, Alphabet with 28.3%, and MS with 15.7% earnings growth expected. In contrast, Apple and Tesla are estimated to see their profits decline by 3.1% and 38.3%, respectively.

BI forecasts that the earnings growth rate of the other six companies, excluding NVIDIA, among the Magnificent 7 will be 23%.

Tesla will be the first to announce its earnings after the market closes on the 23rd. Meta will report on the 24th, MS and Alphabet on the 25th, followed by Apple and Amazon next week, and NVIDIA's earnings announcement is scheduled for the 22nd of next month.

Investors view the Magnificent 7 earnings announcements as a turning point for the New York stock market, which has seen increased volatility since the Powell shock. After Chair Powell stated last week that "it may take a long time to gain confidence that inflation is making progress toward the target" and that interest rates could be kept "as long as necessary" if price pressures persist, the market dropped significantly. The Nasdaq index, which is tech-stock heavy, fell 2.1% last week alone, marking its largest decline in 1 year and 5 months since November 2022. The market capitalization of big tech stocks, which had benefited from expectations of rate cuts, has decreased by $930 billion (approximately 1,282 trillion KRW) compared to when the Nasdaq index peaked. Even NVIDIA, the AI leader, dropped 10% in a single day on the 19th due to short-term surge concerns and semiconductor industry skepticism, losing $212 billion (approximately 292 trillion KRW) in market cap. Both first-quarter earnings and future earnings outlooks are expected to influence the market trend.

Mark Hacket, Chief Investment and Research Officer at Nationwide, analyzed, "Geopolitical and political uncertainties have joined inflation, interest rates, and the Fed in putting pressure on the market," adding, "This week will be an important period where bulls and bears engage in a tug-of-war as earnings and the Personal Consumption Expenditures (PCE) price index are released."

On Wall Street, there is analysis that big tech stocks remain overvalued despite recent corrections. The Magnificent 7's 12-month forward price-to-earnings ratio (PER) currently stands at 31 times.

Matt Perron, Head of Research at Janus Henderson Investors, said, "Currently, (stock prices) are quite high," and added, "The question is whether we are at a point where we can push prices higher, and there may be some disappointments compared to expectations." He further noted, "Unless the outlook is really bad, earnings are unlikely to cause the market to collapse too much."

There is also a forecast that future stock price trends will depend on whether the AI boom is reflected in earnings.

Anthony Scaglione, Chief Market Strategist at Ameriprise Financial, analyzed, "NVIDIA is indeed a company whose earnings exceed market expectations, but for other AI-themed stocks, investors are increasingly linking profits to investment insight," adding, "They want to verify whether companies have actually grown through AI or at least have a credible growth strategy based on AI."