Step Aside, Banks. Tesla and Netflix Earnings Are the Real Tests.

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The Magnificent Eight punch well above their fundamental weight, thanks to premium valuation multiples.

Forget banks—third-quarter earnings season doesn’t start until Wednesday, when Netflix and Tesla report.

Don’t expect the overall market to care too much about how the banks do. The S&P 500 financials sector, which includes banks and insurers but also Visa and Mastercard , totals 12.7% of the index’s market value. Its earnings contribution is expected to be larger, at 17.4% of third-quarter earnings, according to data from Refinitiv. But these days, the banks are less a reflection of the U.S.

The group makes up roughly 30% of the S&P 500’s market capitalization but is expected to contribute just 10% of the index’s third-quarter sales and 16% of earnings, according to Refinitiv. Hits and misses from their results will prompt outsize moves in the index. Nvidia is responsible for another 1.5 percentage point of expected growth, Amazon for 0.6 point, and Alphabet and Microsoft for 0.5 point each. With growth rates like those, how well the biggest companies on the market do could meaningfully swing overall S&P 500’s earnings growth one way or another.There’s a slim margin for error: Analysts are predicting 1.3% year-over-year earnings growth from the S&P 500 in the third quarter, per Refinitiv.

 

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