Wall Street is entering the most critical week of the second-quarter earnings season. While most S&P 500 companies have exceeded expectations so far, investor focus remains firmly on the Magnificent 7, the main actors of the artificial intelligence race. Microsoft and Meta report on Wednesday, followed by Apple and Amazon on Thursday, with results likely to test whether heavy AI spending is translating into tangible revenue and profit growth.
These releases could set the market’s direction in the weeks ahead, predicts etoro analyst for Romania, Bogdan Maioreanu.
So far, 6 of the 7 Magnificent are lagging behind the broader S&P 500 index, Apple being the exception with almost 24% price return from the beginning of this year. Nvidia is up only 5.37%, followed by Alphabet-Google (4.07%) and Amazon, which is basically flat (0.25%). Meta offered a negative return (-10.03%), as did Microsoft (-19.54%) while Tesla lost almost a third of its value this year (-31.24%).
In the broader market, despite a more cautious tone in recent days, US corporate fundamentals remain strong. Roughly a quarter of S&P 500 companies have reported, with 85% beating expectations according to LSEG I/B/E/S . Blended earnings are up almost 39% year over year, while revenues have grown by almost 13%. Importantly, growth is broadening: six of eleven sectors are delivering double-digit earnings increases. So far, the energy sector looks to be the big winner of the second quarter reporting, with earnings rising over 120% compared with last year, as oil and gas producers benefited from higher prices driven by the Iran war and the closure of the Hormuz Strait. Communication services are closely following (112%), with Technology (67%) and Materials (35%) benefiting from the AI boom. Financials are contributing more meaningfully, supported by strong capital markets activity and a rebound in investment banking, suggesting earnings momentum is no longer limited to technology.
Europe is also showing signs of improvement. Companies in the STOXX 600 index have delivered average earnings growth of 17%, or around 7% excluding the energy sector, while revenues increased on average by almost 12%. Almost half of the European companies that reported offered positive surprises. Energy remains the biggest gainer in Europe too, with earnings rising 122% year on year.
Still, markets remain highly sensitive to developments among the Magnificent 7, which account for over a third of the S&P 500’s market capitalization. All Magnificent 7 stocks are among the top 10 most held stocks by investors on the trading and investing platform etoro. Recent financial results highlight an interesting dynamic: Alphabet posted strong performance while Tesla had record revenues for the quarter. Despite this, both companies face scrutiny over rising AI investment and negative free cash flows. In simple terms, investors fear that in this AI race, companies are spending more cash than they are bringing in after paying for running costs and investments. This raises the stakes for the remaining companies yet to report this week, and creates a very high expectation in the market for Nvidia’s earnings report due on August 26 as investors are trying to assess where this AI investment cycle is going and how it will pay off.
According to the latest etoro Retail Investor Beat survey, at the global level, we see cautious optimism, with 43% of retail investors believing that the Magnificent 7 companies will outperform the market this year while only 10% expect that they will underperform. Romanian investors are a bit more optimistic, with 45% believing in an overperformance, while 13% are considering that the tech giants will underperform the broader market.
Beyond earnings, macro factors remain in focus. Geopolitical tensions could quickly reverse the recent decline in oil prices, complicating the inflation outlook and potentially keeping interest rates higher for longer. The Federal Reserve’s decision this Wednesday will be another key catalyst. At the same time, investor positioning is driving volatility. Hedge funds, leveraged ETFs, and retail investors are reducing leverage, contributing to sharper market swings, particularly in technology and semiconductors. Recent volatility should therefore be seen less as a signal of weakening fundamentals and more as a repositioning phase following a strong rally. The coming days could prove crucial for near-term market direction.
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