Crucial test of equity sentiment as monster earnings week awaits Crucial test of equity sentiment as monster earnings week awaits Crucial test of equity sentiment as monster earnings week awaits

Crucial test of equity sentiment as monster earnings week awaits

Equities 6 minutes to read
Picture of Peter Garnry
Peter Garnry

Chief Investment Strategist

Summary:  We observe more signs of stabilisation in equities with volatility markets normalising and Italian government bonds coming back from the lows. But this week will be the ultimate test of sentiment with earnings from Apple, Amazon, Microsoft, Facebook and Alphabet (Google's parent) and these stocks have helped the equity market bouncing back faster than expected. Equity valuations remain extremely elevated and thus good earnings and a positive outlook from these major companies are important for sentiment.

Last week was the first real test in weeks of sentiment in equities with Friday showing buyers are still controlling the game. Earnings have had a similar pattern of generally disappointing and the majority of companies skipping their outlooks as the economic environment is too uncertain. Technology stocks continue to be bid higher and volatility futures are close to be in contango for the first time in almost two months. Italian government bonds (BTPs) are also bid this morning as Italy is preparing to open its economy again. Many small positive signs although the oil market is still sending distressing price signals due to massive demand and supply imbalance.

Source: Saxo Group

But more tests await investors this week with the most earnings week in many years. The five big companies Apple, Amazon, Microsoft, Facebook and Alphabet are all reporting earnings this week and with a combined index weight of 20.2% of these five names this will make or break equity sentiment. That five companies are now more than 20% of the S&P 500 is higher than what we observed during the dot-com highs and the energy dominance in the 1980s. A market cap concentration is always a sign of a structurally sick equity market and that a fundamental shift is coming. It’s also a sign of the narrowness of the equity market and the market is no longer reflecting the real economy – that’s being reflected by banks as the loans of Main Street sit on banks’ balance sheets.

Coming back to earnings we remain very sceptical of Facebook and Google’s earnings despite the positive surprise from Snap which we believe does not represent the overall picture of the online advertising market. Microsoft will most likely deliver to the joy of investors but could issue an outlook as Intel did with massive uncertainty related to the second half of the year. If many small companies go bankrupt globally it could impact the tail of Microsoft customers buying Windows, Office and Azure solutions. Apple could go both ways and is probably where there is the most uncertainty. On the negative side Apple could have been hit harder than expected due to stores closures, but then surprise on their Services segment as more customers have likely used the ecosystem buying apps, music etc. Amazon is really the dark horse this week. Revenue numbers will likely be up massively but margins could disappoint as the company has hired 100,000 extra workers, just increased pay for workers and the advertising segment could have taken a hit like Google and Facebook. With Amazon’s bigger and bigger market share and market capitalization the question of when the company will spin off its Amazon Web Services business (cloud) will arise and it could be a move from the founder and CEO Jeff Bezos to alleviate some of the anti-trust forces mobilizing against the company.

Source: Earnings Whispers

Besides the mega caps reporting this week we have oil majors, the big pharma companies, European banks and US credit card companies such as VISA and Mastercard reporting. Here the most important ones for sentiment are the European banks which are expected to post higher provisions for loan losses compared to the US banks as the economic downturn is expected to be more severe in Europe than in the US. The US credit card companies are also a must to watch as we expect severe deterioration in credit quality among US consumers and will be a good leading indicator on the health of the consumer.

Finally, while we observe increased stabilisation in equities we are also still observing equity markets being priced at elevated forward valuation multiples which are common with late cycle market behaviour than the early phase of a recession. Typically we observe compressed valuations, below the historical average, reflecting the uncertainty but also increasing the equity risk premium to entice investors to bid on assets. Low valuations are typically the main explanation for future returns which means that buying assets in a recession is a good thing for long-term returns. But this time equities have above average valuation on a forward basis and the economic shock has just started and not fully cascaded through all the layers of the economy. Enjoy the week.

Quarterly Outlook 2024 Q3

Sandcastle economics

01 / 05

  • 350x200 peter

    Macro: Sandcastle economics

    Invest wisely in Q3 2024: Discover SaxoStrats' insights on navigating a stable yet fragile global economy.

    Read article
  • 350x200 althea

    Bonds: What to do until inflation stabilises

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain inflation and evolving monetary policies.

    Read article
  • 350x200 peter

    Equities: Are we blowing bubbles again

    Explore key trends and opportunities in European equities and electrification theme as market dynamics echo 2021's rally.

    Read article
  • 350x200 charu (1)

    FX: Risk-on currencies to surge against havens

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperform in Q3 2024.

    Read article
  • 350x200 ole

    Commodities: Energy and grains in focus as metals pause

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities in Q3 2024.

    Read article


The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
Notification on Non-Independent Investment Research (
Full disclaimer (
Full disclaimer (

Saxo Bank A/S (Headquarters)
Philip Heymans Alle 15

Contact Saxo

Select region


Trade responsibly
All trading carries risk. Read more. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more

This website can be accessed worldwide however the information on the website is related to Saxo Bank A/S and is not specific to any entity of Saxo Bank Group. All clients will directly engage with Saxo Bank A/S and all client agreements will be entered into with Saxo Bank A/S and thus governed by Danish Law.

Apple and the Apple logo are trademarks of Apple Inc, registered in the US and other countries and regions. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.