Photo by Alexander Grey on Unsplash
 

Equity futures are little changed as we move further into the September quarter earnings season. As we discussed in yesterday’s The Week Ahead video, not only does the volume of earnings reports swell this week, but the market will have to contend with quarterly results from five companies that account for 23% of the S&P 500 and nearly 30% of the Nasdaq Composite. What Alphabet (GOOGL), Meta (META), Microsoft (MSFT), Amazon (AMZN), and Apple(AAPL) deliver and the guidance they offer will likely dictate the market’s next move as well as reshape earnings expectations for the S&P 500. With the P/E ratio for that market barometer trading above 24x consensus 2024 EPS, it’s fair to say expectations for those five companies are running high. 

While investors will dig into quarterly results from McDonald’s (MCD) and Pfizer (PFE) this morning as they further digest tepid guidance from Ford Motor (F), the tech fun begins after today’s market close. Shortly after closing bells ring, Snap (SNAP), Reddit (RDDT), and Advanced Micro Devices (AMD) will share their September quarter results and guidance but the focal point will be on those from Alphabet. Shareholders will be interested in the usual Search metrics and the degree of margin improvement, while the pace of growth at Google Cloud becomes the hurdle for Amazon Web Services, Microsoft’s Azure, and Meta’s cloud business. 

Comments on AI adoption and monetization, how Google is utilizing AI in search and advertising, and if Alphabet lifts its 2H 2024 capital spending further to meet the exploding demand for AI will also set the stage for other Big Tech results tomorrow and Thursday. Rising capital spending levels for cloud and data centers would give a boost to stocks like Nvidia (NVDA) as well as our Digital Infrastructure model but it may also raise questions about when these companies will start to reap the rewards of these investments in the form of revenue and profits.

Today also brings the start of this week’s barrage of employment data with the September JOLTs report. While the data will fill in the lines around the health of the overall jobs market in 3Q 2024, the jobs action many are waiting for will come tomorrow with ADP’s Employment Change report, and the 115,000 jobs it is expected to show were added during October. Should that be the reported figure, it would be a noticeable step down from the 143,000 jobs added in September and reaffirm the expected drop in Friday’s October Employment Report. The current consensus figures for that barometer on job creation is 123,000 jobs, less than half the number created in September. 

Figures like that support expected 25-basis point rate cuts next week and again in December, but should the jobs market surprise meaningfully to the upside like it did in September, we are likely to see rate cut expectations between November and June soften further. Seeds for that potential upside surprise were found in S&P Global’s Flash PMI report for October which found “Employment fell for a third straight month in October, though the decline was again only very modest and less than reported in August and September.”

Interestingly enough, when asked about the prospect of two more rate cuts this year at Saudi Arabia’s Future Investment Initiative, not a single executive in a panel that included the heads of Goldman Sachs (GS), Morgan Stanley (MS), Standard Chartered Plc (STAN), Carlyle Group (CG), Apollo Global Management (APO), and State Street Corp (STT) raised their hands. The majority of those folks see one more reduction by the end of 2024.

As we wait for those earnings and jobs data, the White House announced that $3 billion from the Inflation Reduction Act has been earmarked to strengthen port infrastructure, the latest announcement that bodes well for our Rebuilding America model.  

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