This week is very busy for the US earnings season, especially for the S&P 500, which just ended a two-week losing streak. Important tech companies like Meta, Microsoft, Tesla, and Apple will report their earnings, drawing a lot of attention because of their big role in the index’s growth. Last year, the top seven tech companies, including Nvidia and Alphabet, contributed over 40% to the total return of the S&P 500. They are projected to show earnings growth of more than 20% for the last quarter, compared to just 4.1% for the rest of the index. However, this year they have underperformed, with stocks like Meta and Microsoft facing increased scrutiny.

Commodity Surge Amidst Geopolitical Tensions

Commodities like gold and silver have done well due to geopolitical tensions and changes in the US economy. The iShares Silver Trust had a trading volume of $40 billion in one day, highlighting a shift toward commodities over big tech companies. Traders expect significant reactions to the upcoming earnings reports, especially for Nvidia. The KBW banking index is struggling as the largest US banks see their share prices drop after earnings reports. If the Magnificent 7 make any mistakes, it could further hurt their performance, making it more difficult for tech leaders like Microsoft, Meta, Tesla, and Apple to regain their earlier strength. The S&P 500 is coming off its first two-week losing streak since June of last year, dropping 3.5% from its recent highs. With the market feeling nervous, this week’s earnings reports from the Magnificent 7 are especially important for setting short-term direction. The CBOE Volatility Index (VIX) is currently around 18.5, reflecting high anticipated movement in options pricing. There has been a clear shift from big tech to hard assets at the start of the year, a trend that increased after last year’s concerns about dollar debasement. Gold futures are up 8% in January, while the Magnificent 7 stocks have underperformed, dropping an average of 4% year-to-date. This shift suggests traders are hedging against geopolitical risks and are doubtful about tech’s ongoing dominance.

Earnings Anticipation for Tech Leaders

Current options pricing indicates that traders expect significant price swings after this week’s results, especially for Meta and Microsoft on Wednesday. The market anticipates an approximate 8% change for Meta and a 6% move for Microsoft after earnings, showing higher expected volatility than the upcoming FOMC meeting. This makes strategies like straddles or strangles appealing for those without a clear market direction. Earlier this month, disappointing earnings from major banks, where strong revenue from JP Morgan was overlooked due to a weak outlook, set a negative tone. This means that even a small misstep in guidance from any of the Magnificent 7 could lead to a large negative reaction in their stock prices. We should be prepared for the market to “sell the news,” even if earnings reports are strong, if guidance isn’t perfect. For Microsoft, the emphasis is on showing that last year’s investments in AI can bring in revenue, especially in its Azure cloud division. After rival Amazon reported a slowdown in AWS growth, any positive news about Azure could lead to a strong rally. With Microsoft’s stock down 8% over the last six months, the expectations are relatively low if management can project confidence. We are closely watching Meta’s spending plans, as the market lost patience with them last year. With the stock’s forward P/E ratio now at 19, below the S&P 500 average, there’s room for an upward correction if the company demonstrates a clear strategy for monetizing its AI models. However, any signs of excessive spending without solid returns could result in severe penalties. For Tesla, the focus will not be on the expected weak earnings but on updates about full self-driving technology and the Optimus robot. If competitors like BYD report record sales, traders may react negatively to any perceived lack of progress on Musk’s ambitious promises. Apple is anticipated to report significant revenues, but traders will be keenly focused on the company’s future guidance regarding profit margins. Memory chip prices have risen over 30% since midway through last year, creating a challenge for 2026. Combined with recent data showing a decline in iPhone sales in China, any cautious remarks could overshadow strong fourth-quarter results. Create your live VT Markets account and start trading now.

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