Investing.com - One of the most important catalysts for investors right now is corporate earnings.
Ben Laidler, Global Markets Strategist at eToro. He stresses that "technology is the Godzilla of the market, as it is the largest, best performing and fastest growing sector. The 'Magnificent 7' are leading the earnings recovery, which in the third quarter will be up more than 30%", and contrasts this with the banking sector which "is the proverbial King Kong". "These key intermediaries in the real economy face deposit outflows and slowdown headwinds, with stock prices lagging and markets near their lowest valuations," he explains.
Godzilla tech stocks versus King Kong bank stocks
"We are facing a pivotal earnings season, with US stocks poised to end their earnings recession and with earnings taking over from valuation re-rating as the market driver. This help is needed more than ever, with the wall of worry getting higher and higher, from the Middle East and oil to inflation and bond yields," notes Laidler.
"Technology is the Godzilla of the market, as it is the largest, best performing and fastest growing sector. The Magnificent 7 are leading the earnings recovery, which in the third quarter will be up more than 30%, compared to -2% for the rest of the 'S&P 493', justifying their high valuation and lifting the entire market. Meanwhile, banks are the proverbial King Kong. These key intermediaries of the real economy face deposit outflows and slowdown headwinds, with stock prices lagging and markets near their lowest valuations," he adds.
TECHNOLOGY
The "Magnificent 7" will post double-digit sales growth and earnings growth of more than 30%, compared to 2% for the S&P 500, Laidler explains. "This growth and their 20% net margins are the main risk factors. This growth and its 20% net margins justify the 50% valuation premium. Tesla (NASDAQ:TSLA) reported yesterday and is expected to be the only one to grow less than the S&P 500. Investors will focus on AI growth at MSFT (Oct 24) and especially the late report from NVIDIA (NASDAQ:NVDA) (Nov 21), ad revenue recovery at GOOG (24) and META (NASDAQ:META) (25), and the Christmas and new i-Phone 15 outlook at AMZN (26) and Apple (NASDAQ:AAPL) (Nov 2). Many are also in the government's antitrust crosshairs and increasing dividends and buybacks. Investors will be watching for any updates," explains the eToro strategist.
BANKS
"It is the third largest US sector and the key intermediary in the real economy. Third quarter results were mixed. Deposit outflows continued but slowed, while credit card spending stagnated, with delinquencies rising and volumes of large, rate-sensitive mortgage and auto loans declining. Investment banking earnings have shown signs of life. Shares of large and regional banks have fallen more than 20% this year, unable to recover from the March "scare". They are some of the cheapest in the market, with concerns about slowing economies and the fragility of high rates," concludes Laidler.
Translated from Spanish using DeepL.
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