Earnings Rush Ignites: Tesla, Alphabet, and More Amid Market Uncertainty

Summary

The S&P 500 (^GSPC) and Nasdaq Composite (^IXIC) are near record highs despite escalating tariffs and a growing debate about monetary policy. The Nasdaq Composite led the gains last week, rising over 1.6%, while the S&P 500 popped about 0.7%. The Dow Jones Industrial Average (^DJI) was just above the flat line.

112 S&P 500 companies are set to report quarterly results this week, with reports from Alphabet (GOOGL, GOOG), Tesla (TSLA), and Chipotle (CMG) in focus. A quiet week of economic data releases will highlight updates on activity in the services and manufacturing sectors as the Federal Reserve enters its blackout period ahead of its July 29-30 policy meeting.

Rate Debate Heats Up

Federal Reserve Governor Christopher Waller made his clearest call yet for an interest rate cut in July. During a speech in New York, Waller said the Fed should cut rates in July, adding that the federal funds rate is more than one full percentage point higher than it should be.

"With inflation near target and the upside risks to inflation limited, we should not wait until the labor market deteriorates before we cut the policy rate," Waller said.

However, recent moves in market pricing have shown investors growing less optimistic about rate cuts. Last week, signs of stickiness in consumer inflation combined with a stronger-than-expected June retail sales report and weekly unemployment filings pushed out interest rate cut bets.

As of Friday, markets were pricing in just a 5% chance that the Federal Open Market Committee would cut rates in July, per the CME FedWatch Tool. A month ago, markets had priced in closer to a 13% chance.

"We expect the committee to arrive at a consensus to cut rates in September as the hawkish case weakens with the job market loosening further and no signs of tariffs spilling over into a broader inflationary trend," Citi chief US economist Andrew Hollenhorst wrote in a note to clients on Friday.

Earnings Scorecard

Big banks kicked off the second quarter earnings reporting period with a string of better-than-expected results. Netflix (NFLX) followed those up on Thursday night with an estimate-beating report. Both the streaming giant and the large financial banks said that the US consumer continues to hold strong.

On an aggregate level, the S&P 500 is now pacing to report earnings growth of 5.6% compared to the same quarter a year ago, per FactSet data. This is above the 4.8% analysts were expecting just last week.

Despite the strong reports, some stocks that had seen massive rallies heading into their reports saw a muted stock reaction in the trading session following their reports. For example, Netflix stock fell nearly 5% on Friday despite raising its full-year revenue guidance. Netflix stock had been up nearly 100% over the past year heading into the release.

"An overall ‘good’ set of results and guide were not good enough for elevated expectations, in our view," William Blair analyst Ralph Schackart wrote in a note titled "Good Quarter, but Tough to Surpass High Expectations."

Eyes on the ‘Broadening’

Alphabet and Tesla will kick off quarterly releases for the "Magnificent Seven" tech stocks. Once again, that cohort is expected to lead S&P 500 earnings growth this quarter.

The Magnificent Seven is expected to have grown earnings by 14.1% compared to the year prior during the second quarter. The other 493 stocks in the index are expected to have seen just 3.4% year-over-year earnings growth. That means the prospect of S&P earnings surprising to the upside largely hinges on Big Tech results.

But as the chart below shows, consensus is expecting the other 493 to begin driving a greater share of earnings growth over the next several quarters—a key call among Wall Street strategists hoping for a broadening of the stock market rally that has only come in spurts over the past several years.

"It’s time for earnings to deliver," Citi strategist Scott Chronert wrote in a note to clients. "Commentary will be key if we hope to see further upside in revisions, and hopefully, some inflections in cyclical sector growth to finally drive broadening."

Weekly Calendar

Monday:

• Economic data: Leading index of economic indicators, June (-0.2% expected, -0.1% previously)
• Earnings:
  • Cleveland-Cliffs (CLF)
  • Domino’s Pizza (DPZ)
  • Steel Dynamics (STLD)
  • Verizon (VZ)

Tuesday:

• Economic data: Richmond Fed manufacturing index, July (-4 expected, -7 previously)
• Earnings:
  • Capital One (COF)
  • Coca-Cola (KO)
  • DR Horton (DHI)
  • Enphase Energy (ENPH)
  • GM (GM)
  • Lockheed Martin (LMT)
  • Philip Morris International (PM)
  • SAP (SAP)
  • Texas Instruments (TXN)

Wednesday:

• Economic data: MBA mortgage applications, July 18 (-10% prior); Existing home sales month-over-month, June (-0.7% expected, +0.8% prior)
• Earnings:
  • Alphabet (GOOGL, GOOG)
  • Tesla (TSLA)
  • Chipotle (CMG)
  • Alaska Airlines (ALK)
  • AT&T (T)
  • Fiserv (FI)
  • Freeport-McMoran (FCX)
  • GE Vernova (GEV)
  • General Dynamics (GD)
  • Hasbro (HAS)
  • IBM (IBM)
  • O’Reilly Automotive (ORLY)
  • QuantumScape (QS)

Thursday:

• Economic data:
  • Initial jobless claims, week ending July 19 (230,000 expected, 221,000 previously)
  • Chicago Fed national activity index, June (-0.28 previously)
  • S&P Global US manufacturing PMI, July preliminary (52.7 expected, 52.9 previously)
  • S&P Global US services PMI, July preliminary (53.1 expected, 52.9 previously)
  • S&P global US composite PMI, July preliminary (52.9 previously)
  • New home sales, month over month, June (+4.3% expected, -13.7% previously)
• Earnings:
  • American Airlines (AAL)
  • Blackstone (BX)
  • Deckers (DECK)
  • Dow (DOW)
  • Honeywell (HON)
  • Intel (INTC)
  • Keurig Dr Pepper (KDP)
  • Nasdaq (NDAQ)
  • Nokia (NOK)
  • Southwest Airlines (LUV)
  • Union Pacific (UNP)

Friday:

• Economic data: Durable goods orders, June preliminary (-10.8% expected, +16.4% prior)
• Earnings:
  • Charter Communications (CHTR)