Big Tech Companies Retake Market Leadership on Wall Street

This week, the rally on Wall Street will face a fresh test with a group of earnings reports from some of the major companies in the US, including the internet and tech behemoths that have recently taken market reins. This week, almost one-third of the S&P 500 are scheduled to report their quarterly results, headlined by Microsoft, Apple, Google-parent Alphabet, and Amazon, which are the four largest companies in the US by market value. This month, these stocks have experienced again between 5% and 7%, whereas the S&P 500 has only increased by 1.6%.

Market experts said that the expectation level for these companies was on the high side than it had been a month ago, primarily because of the stock performance and they are expected to deliver. The real question is whether these companies will be able to meet the expectations reflected by the stock price or not. The strengthening in these large stocks has occurred amidst concerns about a slowdown in the recovery of the US economy that has helped in reducing the benchmark Treasury yields last week to their lowest since February. With the Delta variant of the coronavirus now spreading throughout the US, the meeting of the Federal Reserve on Tuesday and Wednesday will be focused on the economic outlook.

The meeting will be another prominent clue for investors who are looking for clues as to when the central bank will rein in its monetary policies. As opposed to the lows it reached in March 2020, the S&P 500 has reached record levels after it rallied more than 95%. However, stocks have experienced more volatility these days as investors are trying to achieve a reconciliation of bond-market signals regarding the economic outlook. The stock performance does indicate that there are doubts pertaining to economic strength. For years, growth stocks have led the market as the economy grew slowly.

In July, these stocks managed to outperform value stocks that are economically sensitive, while there has also been a lag in small stocks, which tend to be more exposed to the US economy. This month, there has been a 4% decline in the small-cap Russell 2000. There are also concerns regarding the dominance of mega-cap stocks because it shows the dependence of the broader index on a handful of massive technology-related companies. The market capitalization of five companies, namely, Amazon, Microsoft, Apple, Facebook, and Alphabet amounted to almost 24.6% of the S&P 500 market capitalization.

This is the highest proportion it has reached in 2021. Less than half of the stocks in the S&P 500 were recently trading above their moving averages for 50-days, even as the index has been near new highs, as opposed to more than 90% back in April. As for bullish investors, they expect the earning season to have a strong start to indicate a powerful rebound from the global pandemic. So far, 120 companies in the S&P 500 have reported their earnings, a 78.1% increase in second-quarter earnings is expected from a year ago.