U.S. equity indices extended their recovery on Monday in a busy week for earnings season, despite a major sell-off in Chinese stocks after Xi Jinping secured a third term and packed the Politburo standing committee with loyalists.

Meanwhile, dismal U.S. economic data, which showed a sharp contraction in business activity in October, failed to trigger a bearish reaction on Wall Street on bets that the rapidly deteriorating growth outlook could lead the Federal Reserve to reassess its hawkish stance sooner rather than later, paving the way for a less aggressive hiking cycle.

When it was all said and done, the S&P 500 gained 1.19% to end the day at 3,797, with the healthcare sector leading the gains and materials and real estate bucking the positive trend. Elsewhere, the Nasdaq 100 rose 1.06% to 11,430, notching its best close since October 6th, ahead of key corporate results from megacap Microsoft and Alphabet tomorrow.

Here's a look at what investors are expecting and what to watch for in the quarterly results

Source: EarningsWhisper

Microsoft (MSFT)

Microsoft will report its fiscal 2023 first-quarter results on Tuesday after the closing bell. Analysts expect earnings per share of $2.30 on revenue of $50.08 billion, with the latter metric up 9.6% year-over-year, the slowest growth rate since 2020.

While execution has been outstanding in recent years, the economic slowdown is having a detrimental impact on the business, otherwise the company would not be laying off 1,000 workers in multiple regions and departments as recently reported.

With demand for Microsoft products likely weaker and unfavorable currency fluctuations weighing on profits, financial results could disappoint Wall Street estimates, but traders should try to focus on guidance rather than past performance.

If management shows confidence in its ability to navigate treacherous waters and signals that its diversified business model will withstand economic headwinds largely unscathed, especially the crown jewel intelligent cloud division, MSFT’s shares could be well-positioned to rally in the near term after falling nearly 30% this year.

Alphabet (GOOGL)

Alphabet is slated to announce third-quarter financial results on Tuesday at 4:05 pm ET, with Wall Street estimates calling for EPS of $1.25 on revenue of $71.03 billion. Some analysts, however, believe that consensus expectations are too optimistic due to the ongoing downturn in digital advertisement, the company’s main source of revenue.

While Microsoft may be insulated from some economic headwinds given its more diversified and less cyclical business portfolio, Alphabet’s large reliance on online ad dollars could weigh on its top and bottom line. There is no doubt that the macro landscape is reducing ad-related revenue streams, but some of that weakness could be offset by momentum in the cloud segment.

On balance, a lot of bad news has already been discounted, so quarterly results and forecasts will have to be a disaster for the stock to sell off dramatically. Ultimately, whatever happens, the tech giant retains solid fundamentals on a long-term horizon..

S&P 500, NASDAQ 100 & DOW JONES DAILY CHART

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Source: TradingView

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