Trump, Tech, and the Economy: The Show Is Just Beginning

Earnings season heats up as tech stocks prepare to take the stage. Get insights on what’s driving the market’s next moves.

Opening act. I don’t go to rock concerts often these days, but I have been to my fair share in years past. You show up early to get settled in your seat. This, after at least a week of playing every song in the star’s catalog. You are ready to dance in place and sing your guts out. The lights dim, the curtains rise… your excitement grows. And… a rather sparce stage is set with simply instruments in front of a black background. Hmm, ok. Then the announcer bids you to welcome… a warmup band. A bit of a letdown, but you are ok, and you think, though you’re not quite sure, that you have heard of the warmup group. After one song, you find yourself drifting off as your appetite for the main attraction grows.

These past few weeks have been like one big dance party for stocks. One act after another strutted across the stage leaving us wondering what act would come next. Financial Stocks earnings, Industrial Stocks earnings, better-than-expected inflation numbers, dovish FOMC members, plenty of speculation about tariffs… it was all there.

Just when your feet grew tired, the main act took to the stage earlier this week when President Trump was inaugurated. And he delivered from the minute he took up the mic. He brought on stage with him a star-studded cast of business titans, all rockstars in their own right, and most of them from the same genre of music. Based on that who’s who of the elite S&P500 chart toppers, viewers knew what songs to expect: tech and AI. As the show wore down, the President followed up with several standing ovations, signing droves of executive orders, announcing a public-private partnership which sought to invest $500 billion into AI infrastructure over the next several years, and finally, declaring to world leaders that he would demand lower interest rates from the Fed. Wow, what a show!

And just when you thought the lights would come on, you realized that the show was far from over. The real stars of the show were about to take the stage. That’s right, Tech Stocks earnings, that super-popular group of nerd-genius bankers: The FED, and well… the US Economy. Can you feel the excitement?

That’s right, next week, we will get earnings announcements from the first four of the Magnificent 7 stocks. Microsoft, Meta, and Apple will give us a first clue on how well the rest of earnings season may play out, and indeed, how stocks might perform in the quarter ahead. One of next week’s acts is a hyperscaler (Microsoft) and a software provider. Another (Apple) is tasked with showing us how AI can be used to sell more products, though we haven’t been convinced yet… and its smartphone sales growth appears to be stalling. Still another will tell us how it is already using AI to make more money in its core business (Meta) and how it might compete with that recent spotlight-grabbing phenom TikTok. And finally, there is that mysterious car maker, whose industrialist founder found fame and gain through his close relationship with the President. Will the numbers justify the company’s recent gains? Will they confirm the great potential that shareholders now expect? Will we finally find out what is behind its almost 200x PE, which eclipses the 6x PE of its automaker peers? Oh, and there will be plenty of other important tech companies announcing earnings next week as well, not to mention many other important ones across the other sectors.

Let’s take a step back and have quick look at S&P500 earnings season so far. Financials were the first out of the gate, and the group did not disappoint with 28% earnings growth, so far. Big banks and financial services companies came in with strong results beating EPS estimates by almost 15% on average. We also got a solid chunk of Industrial Sector earnings, which delivered a more muted 2.27% beat margin and negative Sales growth. Though only 1/8 of S&P Technology companies have announced to date, early results have pointed to a far greater than expected EPS growth than was expected. This, given that tech’s EPS growth has been on a downward trend over the past few quarters, only raises the bar higher for next week’s announcements. In this past week, Netflix dazzled investors with a 102% earnings growth helping to raise stock indexes and further setting the tone for media and growth stocks.

Last week’s economic numbers were scarce with this morning's flash PMI numbers being possibly the most potentially influential. This quiet will be followed by next week’s schedule, which is chock full of market movers, least of which is the FOMC meeting, Consumer Confidence, our first look at Q4 GDP, and the Fed’s favorite inflation gauge.

We cannot forget to mention that the President is sure to deliver plenty of market moving insights next week, and the markets seem to be very receptive. So far, markets react to every statement made by the President, even those that should not have any impact. This shows that traders have not yet settled into their pace. Speaking of pace, I hope that you are well hydrated and that you wore comfy shoes, because, my friends, the dance marathon is really just beginning.

YESTERDAY’S MARKETS

Stocks closed in the green with the S&P notching a fresh all-time high, propelled by respectable earnings. President Trump officially kicked off his jawboning campaign against the Fed stating that he would “demand” that interest rates drop immediately; markets applauded, despite the toothless demand. Fed officials will be able to respond next week when they meet to discuss next steps—largely expected to remain unchanged—an opportunity to respond with that hand gesture we are all familiar with. Markets may not be amused, though.

NEXT UP

• S&P Global Flash US Manufacturing PMI (January) is expected to have inched up to 49.8 from 49.4, still in the contraction zone, but getting close to breaking through.
• S&P Global Flash US Services PMI (January) may have slipped to 56.5 from 56.8.
• University of Michigan Sentiment (January)  is expected to come in at 73.2, unchanged from earlier estimates.
• Existing Home Sales (December) probably grew by 1.2% after their 4.8% gain in November.
• Next week: market moving earnings announcements continue, along with housing numbers, Consumer Confidence, Q4 GDP, Personal Income, Personal Spending, PCE Price Index, and an FOMC meeting. Is that enough for you? Be sure and check back in on Monday to download weekly economic and earnings calendars to get ahead of the competition.

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