Forget banks—third-quarter earnings season doesn’t start until Wednesday, when Netflix and Tesla report.
Since Alcoa’s abdication, the kickoff of earnings season has been assigned to the U.S.’s big banks, including JPMorgan Chase and Citigroup, which reported earnings on Friday. This despite the fact that some large, prominent companies, including PepsiCo and Delta Air Lines, disclosed their results earlier in the week.
Banks Take a Backseat
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. economy than they are of monetary and regulatory policy, which take up a good portion of their earnings calls.
No, earnings season doesn’t really get started until Wednesday, when the first of the large technology-oriented stocks that have driven the S&P 500 this year are set to report. That would be Tesla and Netflix, followed by Alphabet, Microsoft, Meta Platforms, Amazon.com next week, and then Apple on Nov. 2. Nvidia’s fiscal third quarter doesn’t end until Oct. 31, and it will report in late November.
The Magnificent Eight
The Magnificent Eight punch well above their fundamental weight, thanks to premium valuation multiples. 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.
The Power Players: Meta and Nvidia Driving Q3 Earnings Growth
Meta, formerly known as Facebook, is set to make headlines with its impressive earnings report for the third quarter. Wall Street analysts are projecting a staggering $8.0 billion in earnings, an astounding 120% increase from the same period last year. This substantial growth is expected to contribute nearly a full percentage point to the overall earnings growth of the S&P 500.
But Meta isn’t the only company making waves. Nvidia, Amazon, Alphabet, and Microsoft are all major players in driving the expected growth of the S&P 500. Nvidia alone is responsible for 1.5 percentage points, while Amazon, Alphabet, and Microsoft each contribute 0.6 and 0.5 percentage points respectively. These powerhouse companies have the potential to significantly impact the overall earnings growth of the S&P 500.
However, there is little room for error. Analysts predict a modest year-over-year earnings growth of 1.3% from the S&P 500 in the third quarter. Two notable detractors from this growth are Exxon Mobil and Pfizer, which are expected to have a negative impact of 1.9 and 1.5 percentage points respectively.
In addition to these factors, the results of Big Tech’s performance can also influence investor sentiment. The stock market has seen a surge in enthusiasm surrounding artificial intelligence (AI) this year, which has been a driving force behind bullish trends. Nvidia has already demonstrated the benefits of AI, while other companies may still be at the stage of promising its transformative potential.
However, hype can only go so far. Ultimately, Microsoft, Meta, and Alphabet will need to prove that their investments in AI are yielding positive returns. Although it is still early in the AI revolution, progress will be crucial for justifying the impressive rallies that the “Magnificent Eight” have experienced this year.
While third-quarter earnings season is officially underway, the real excitement is yet to come.