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Holiday earnings forecasts have been lumps of coal so far, and here come the biggest ones

It's the biggest week of earnings season; can Wall Street handle more bad news?

10/25/2021 12:01:00 AM

It's the biggest week of earnings season; can Wall Street handle more bad news?

Holiday earnings forecasts are disappointing investors so far, and the biggest boxes under Wall Street's tree are coming this week.

So far in earnings season, a dozen S&P 500 SPX, -0.11% companies have issued earnings guidance, and eight of them have come in lighter than expected. Investors have punished those companies — such as Intel Corp. INTC, -11.68%, which had its worst day in more than a year Friday following a weak forecast — as well as those outside the index that have disappointed, such as Snap Inc. SNAP, -26.59%, which lost nearly a quarter of its market capitalization Friday.

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The market can withstand those kinds of moves from a certain number of companies. After all, the Dow Jones Industrial Average DJIA, +0.21% still rose to a record on Friday despite the woeful performance from Intel, one of its 30 components. But poor forecasts in the week ahead could do much more damage, as nearly half of the S&P 500’s market cap will be at stake as Big Tech jumps into the fray.

Alphabet Inc. GOOGL, -3.04% GOOG, -2.91%, Inc. AMZN, -2.90%, Apple Inc. AAPL, -0.53%, Facebook Inc. FB, -5.05% and Microsoft Corp. MSFT, -0.51% are all scheduled to report in the week ahead, with a combined market cap topping $8 trillion. In total, companies comprising more than 43% of the S&P 500’s market cap are expected to report in the coming week, according to Credit Suisse’s Chief U.S. Equity Strategist Jonathan Golub, much more than has already reported so far this season (25.5%).

Big Tech’s strength through the pandemic has been a backstop for the overall market, but there are reasons to be concerned. Apple and Amazon are facing some of the same supply-chain problems that have roiled other industries, with expectations that Apple will struggle to supply enough new iPhones to meet holiday demand and Amazon’s signature logistics network will require a lot more cash to keep running near peak performance.

Don’t miss: The tech earnings boom is fizzling out, as Apple and Amazon face the same issues as everyone elseAmazon’s forecast last quarter raised eyebrows and lowered the stock price, and analysts now expect that the dominant online retailer’s earnings will decline year-over-year in both the third and fourth quarters, which has only happened in two quarters of the past 16 for Amazon. Apple has stopped giving forecasts during the COVID-19 pandemic, but investors will expect some kind of forward-looking color after reports of trimmed production estimates.

Full earnings preview: Can Apple’s buying power keep earnings on track?Facebook and Google got wrapped up into the Snap decline on Friday, for good reason. Snap detailed customer problems resulting from a big change in Apple’s new operating system that cuts off some access advertisers had to track and manage their campaigns, an issue Facebook has been warning about for more than a year, and warned that advertisers with uncertain supply situations may not be willing to advertise those wares widely. While the two larger online-ad companies may be more insulated from the threats than Snap, they could still be affected.

Full earnings previews: More on Facebook and Google earningsMicrosoft appears to be the safest Big Tech giant, despite a downturn in personal-computer sales. The company’s cloud-computing business, Azure, is expected to continue showing revenue growth well more than 40%, and a $20 billion acquisition expected to close before the end of the year will add even more to that category. The PC decline and any difficulties getting new Xbox gaming systems into stores will factor into the forecast, though.

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Full earnings preview: The PC slowdown shouldn’t hurt Microsoft earnings, and here’s whyFacebook reports Monday afternoon, Microsoft and Google follow on Tuesday, and Apple and Amazon will both report Thursday after the bell. They are but five of more than 160 S&P 500 companies scheduled to report earnings this week, so here are some other reports to watch for.

The numbers to watch The calls to put on your calendar This week in earnings This is expected to be the busiest week of earnings season, with roughly a third of the companies in the S&P 500 and Dow Jones industrial average scheduled to report. FactSet’s Butters expects 164 S&P 500 companies to report, while 10 Dow components are on the schedule, and plenty of companies not in the major indexes will join them, including Canadian e-commerce power house Shopify Inc. SHOP, -4.73% and music-streaming service Spotify Inc. SPOT, -0.80%.

Read more: MarketWatch »


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