’Crowded’ megacap trade in U.S. stocks awaits earnings test

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Next week’s earnings reports from some of the market’s biggest technology and growth companies could prove important

Next week’s earnings reports from some of the market’s biggest technology and growth companies could prove an important test for the U.S. stock rally, which has flagged as expectations for interest cuts fade.) - all set to report next week - are part of the group of companies that had been dubbed the Magnificent Seven as they led the S&P 500 to a 24% gain last year.

Additionally, the monthslong rally in stocks has made the index expensive relative to history at a time when rising Treasury yields are pressuring equity valuations. Disappointing earnings from the market’s heavyweights could give investors less reason to hold stocks. The performance of megacaps’ shares has diverged in 2024, after last year’s epic run. Tesla, which reports results on Tuesday, has seen its shares tumble about 40% in 2024 amid concerns about its electric vehicle business.

Excluding the Magnificent 7, S&P 500 earnings have been negative on a year-over-year basis over the prior four quarters, according to JPMorgan analysts, underlining the group’s importance to the market.

 

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