Source: Wall Street News.

Can the excellent stock performance of US technology giants this year push up Wall Street's expectations again? Will they prove themselves in the new earnings season?

The new round of US stock earnings season will kick off this week, with financial stocks including JPMorgan and Citigroup releasing their performance reports this Friday. Microsoft, Alphabet and Tesla are scheduled to release their results on July 23.

Wall Street's expectations for US stock earnings this time are quite high, According to FactSet's data forecast, the second quarter earnings of the S&P 500 index will increase by nearly 9% year-on-year, and is expected to achieve the largest quarterly increase since early 2022.

In the past, as the earnings season approached, analysts usually lowered their profit forecasts. However, the profit downgrade for this earnings season is not significant.

According to FactSet data, earnings forecast for this quarter has only been lowered by 0.5%, while the average downward adjustment in the past five years was 3.4%.

This also means that major US companies, especially tech giants, must achieve higher profit growth to avoid disappointing optimistic Wall Street analysts and lay the foundation for the stock market to reach new highs.

Despite driving the rise of the S&P 500 index, the contribution of profits from technology giants is slightly insufficient.

Since 2024, the S&P 500 index has risen by about 17%, mainly contributed by a few technology giants: Nvidia's stock price doubled this year and its market value exceeded 3 trillion US dollars. Amazon, Meta, Microsoft, and Apple's stock prices have also soared, up 32%, 53%, 24%, and 18% respectively this year. Investors' valuations of technology giants have also continued to soar, and the overall average price-to-earnings ratio of Nvidia, Apple, Microsoft, Amazon, and Meta has increased from 28 times to 34 times rapidly.

According to Apollo Global Management's data, the top ten companies in the S&P 500 index account for 37% of the market value of the index, but only contribute 24% of the profit.

This means that the profit reports for the new quarter need to prove that their high valuations are reasonable. If their earnings fail to meet expectations, it may disappoint Wall Street.

Liz Ann Sonders, chief investment strategist at Charles Schwab, said: 'We need earnings to catch up with valuations, but it’s clear that earnings standards have been set quite high.'

Victoria Bills, chief investment strategist at Banrion Capital Management, said that if the profits of these companies cannot exceed expectations, the stock price may experience a correction.

Jim Smigiel, chief investment officer at SEI, said: 'The current situation is unusual. We have excellent technology companies and industries with enormous potential, but even for them, have the expectations been set too high?'

Deutsche Bank: The profit growth of technology giants this time may slow down.

According to Deutsche Bank's forecast, the average profit growth of tech giants in the new earnings season is expected to drop from 38% in the previous quarter to 30%. At the same time, the rebound in profits of other US companies will support further market gains.

Binky Chadha, chief US stock and global strategist at Deutsche Bank, predicts that the stronger profit performance of energy and material companies will offset the slowdown in profit growth of technology giants. But he said that the potential for summer market rebounds is limited.

However, some analysts believe that technology giants in the US stock market are too important. Even if the profit performance of other industries' leading companies exceeds expectations, it may not be enough to offset the daily fluctuations of technology giants in the market.

Steven Sosnick, chief market strategist at Interactive Brokers, said: 'Our pricing may not be perfect, but it is already very good. At present, market sentiment is dominating everything. I am not sure whether the good earnings of companies such as Pfizer, Johnson & Johnson, or Walmart can offset the poor performance of Nvidia and Microsoft stock prices in a single day.'

Goldman Sachs research found that historically, when high-valuation growth stocks fail to meet profit expectations, their stock price performance is usually 32% worse than the market, while low-valuation stocks are usually 16% worse than the market.

Goldman Sachs expects that the valuation of US stocks will remain roughly the same in the future, and profit growth will drive the S&P 500 index to a new high of 5,600 points at the end of the year.

Editor/Lambor