Much has been made of the “magnificent seven’s” contributions to broader market upside this year and rightfully so as those stocks accounted for a massive percentage of the S&P 500’s first half gains. That theme matriculated into the current quarter, too.
With second-quarter earnings season ramping up, there is some burden on the magnificent to deliver the goods. This includes upbeat outlooks for the current quarter. That would be the ideal result for investors holding magnificent seven-heavy exchange traded funds such as the Invesco QQQ (QQQ) and the Invesco NASDAQ 100 ETF (QQQM).
Some marquee earnings tests for QQQ and QQQM arrive Wednesday with reports magnificent member Tesla (TSLA) and Netflix (NFLX), which isn’t a member of the famed cohort. Those stocks combine for nearly 6% of the ETFs’ rosters.
Earnings Could Be Epic for QQQ, QQQM
Underscoring the importance of upcoming earnings reports from major QQQ and QQQM member firms is a simple point. The ETFs are up nearly 45% year-to-date. Some analysts and market observers believe the rallies notched by the magnificent seven are cases of too much, too fast. Some of those stocks are now richly valued.
“Therefore, their earnings and guidance will, we expect, determine the market’s trajectory for the rest of this year and into 2024,” noted deVere Group CEO Nigel Green. “The Magnificent Seven are going to need robust earnings to explain their sky-high valuations.”
As experienced investors know, earnings reports pertain to events that already happened and while they can be catalysts for many companies, market participants are likely to apply more scrutiny to the magnificent seven, demanding that the likes of Microsoft (MSFT), Apple (AAPL), and Nvidia (NVDA), among other QQQ and QQQM holdings, sound bullish tones regarding what’s in store for the remainder of 2023.
“In addition, they will need the guidance to indicate future quarters to be higher than aniticpated for shareholders to receive additional gains. Should this not happen, we could see these stocks shed some of the advances,” added Green.
With Tesla this week and next week’s earnings updates from Microsoft and Facebook parent Meta Platforms (META), investors may soon get a decent sense of how things are shaping up for these mega-cap growth darlings over the next few months. Those three stocks combine for almost 22% of the QQQ and QQQM portfolios.
“Such is their weight, the Magnificent Seven earnings we receive in the next week or so will set global investors’ portfolio positioning for the foreseeable future,” concluded Green.
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