Big Tech earnings are on deck this week. Why that matters

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Investors are now focusing on the earnings of Big Tech companies, rather than bank earnings, as Microsoft, Alphabet and Amazon will all be reporting earnings in the coming week.

It's because only a few large-cap tech shares drove the S&P 500 gains in the first quarter despite the turmoil in the banking sector, the uncertainty surrounding the Federal Reserve's plans to stabilize prices, and the recession fears.

At the start of this year, companies such as Facebook's Meta Platforms, Nvidia, Microsoft, and Alphabet, parent company of Google, surged. This trend accelerated last month, when large-cap technology names became a haven for investors. The Nasdaq Composite, which is dominated by tech companies, has risen over 15% in the past year.

If they report disappointing results or warn investors of headwinds, these stocks may start to trend down, and so will the equity market.

The S&P 500 rally is already starting to slow down. The benchmark index ended the week 0.1% lower after investors had to wade through mixed economic data and earnings reports that painted a complex picture of the state of economy.

What will investors look for when investing?

Trading will depend on guidance to determine which companies are likely to be able weather a possible recession and whether they will be able survive it. This has been a major theme for Wall Street since the start of the earnings season. The uncertainty surrounding inflation, Federal Reserve plans to control it, and the potential of a recession are all looming over the street.

The race towards artificial intelligence is another major theme in tech earnings.

Since ChatGPT's launch in November, the pressure on tech firms to develop AI units has increased rapidly. Meta, Alphabet, and Microsoft have all expressed their intention to increase their presence in AI since then. Other tech companies like IBM, Amazon and Tencent have also expressed their intent to strengthen their presence in the AI space.

While Elon Musk and other tech leaders have warned about the possible consequences of AI, there have been many investments, including those from Tesla's chief executive.

Investors are also looking for signs of cost-cutting, such as mass layoffs that have helped boost the bottom line.

Last year, tech companies started to reduce their workforces in order to cut costs. They had overexpanded during the Covid Pandemic and were unable to keep up with the rapid growth due to low interest rates.

After the Fed increased interest rates, Wall Street began to favor companies that returned cash to shareholders instead of spending it. This preference is not likely to change in the coming year, as the economy is expected weaken.

Stocks of home builders gain despite rising mortgage rates

The home builder stocks increased last week even though mortgage rates rose to their highest levels in a month.

The SPDR S&P Homebuilders ETF rose 3.4% in the past week, beating out the S&P 500 index which fell by 0.1%.

This comes after data on new home starts released Tuesday showed that US homebuilding fell by 0.8% from the previous month, with a decline in multi-family construction outpacing an increase in single-family housing.

The US data on home sales for March revealed that the sales were down that month. This decline comes after a year-long trend of declining home sales that was reversed in February, largely due to a rise in mortgage rates.

Why did the homebuilder stock rise this past week despite disappointing data?

DR Horton's (DHI), shares rose 8.5% in the last week, after the company surpassed earnings expectations and increased its outlook for full-year. This helped boost the sector as investors became more optimistic about the recovery of the housing market.

Last week, shares of Lennar rose 5.9%. Toll Brothers (TOL), gained around 3%. NVR (NVR), gained around 5%. PulteGroup's (PHM) shares and KB Home's (KBH) rose by about 5% and 4.5% respectively.

'It is a clear indication that the stocks that are able to beat their earnings expectations and provide a positive guidance will be rewarded this earnings season', said Louis Navellier. Chief investment officer of Navellier & Associates.

He said that investors can also ignore the rise in mortgage interest rates this week because they do not expect it to last.

Investors may have thought that the recent data was a fluke because mortgage rates had fallen for five weeks. Navellier said that the stabilization of prices for home building materials also makes a case for improved operating margins.

Monday: Chicago Fed National Activity and Dallas Fed Manufacturing Business Index. First Republic Bank, Philips and Coca-Cola all reported earnings.

Tuesday: S&P Case Shiller home price index, and new home sales. Microsoft (MSFT), Alphabet, (GOOGL), PepsiCo, (PEP), McDonald's(MCD), United Parcel Service, (VZ), Verizon (VZ), General Motors' (GM), Chipotle Mexican Grill's (CMG), Danaher's (DHR), and Halliburton's (HAL) earnings reports.

Wednesday: Durable Goods Orders, Advanced Retail Inventory and Advance Wholesale Inventory. Meta Platforms (META), Boeing BA and ServiceNow NOW report their earnings.

Thursday: Jobless claims, Q1 GDP and mortgage rates. Amazon (AMZN), MasterCard, T-Mobile, Keurig Dr Pepper and Capital One report their earnings.