Jim Cramer, the host of CNBC's "Mad Money," has highlighted the upcoming earnings reports from major tech companies as a critical turning point for the "great rotation" in the stock market.
What Happened: Cramer, in his recent article, pointed out that the upcoming earnings reports from tech giants like Microsoft Corp. (NASDAQ:MSFT), Meta Platforms, Inc. (NASDAQ:META), Apple Inc. (NASDAQ:AAPL), and Amazon.com, Inc. (NASDAQ:AMZN) will be a crucial test for the "great rotation" theory.
The "great rotation" refers to the movement of investors away from large-cap technology stocks and into small-cap stocks. This shift has been a significant trend in the stock market over the past few months.
Cramer emphasized that the market has been filled with speculative theories about the performance of these tech giants, but the upcoming earnings reports will provide the real facts.
He also noted that the recent earnings reports from Alphabet Inc. (NASDAQ:GOOGL) (NASDAQ:GOOG) and Tesla, Inc. (NASDAQ:TSLA) were met with disappointment, despite exceeding expectations. This, he suggests, is a sign that the market may not react as expected to the upcoming tech earnings.
"If the so-called "great rotation" out of megacap technology stocks into small caps that began earlier in July hadn't been at its zenith, I think both stocks would have rallied," Cramer wrote.
Why It Matters: The tech earnings season began with disappointments, as shares of the "Magnificent Seven" companies declined during the last trading week. Alphabet Inc. reported stronger-than-expected earnings and revenue but missed analysts' targets on YouTube advertising revenue.
This led to the worst week of the year for the Google parent company's stock. Similarly, Tesla Inc. missed quarterly earnings forecasts due to thinner profit margins impacted by lower vehicle prices and restructuring charges, causing shares to fall 12.3%.
As the second-quarter earnings season approaches, Amazon.com Inc., Uber Technologies Inc. (NYSE:UBER), and Alphabet Inc. are emerging as standout picks. JPMorgan analyst Doug Anmuth highlights these companies as top picks, despite the mixed performance of the internet sector so far this year.
Cathie Wood, the CEO of ARK Invest, has predicted a potential shift in the equity market, favoring small-cap stocks over large-cap tech companies. This forecast is based on the current "restrictive" monetary policy of the Federal Reserve, as outlined in a recent investor letter.
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This story was generated using Benzinga Neuro and edited by Kaustubh Bagalkote