Nasdaq 100 Forecast: “Magnificent Seven” Q4 2023 Earnings Preview

Nasdaq 100 Key Points

• The Magnificent Seven stocks make up more than 100% of the S&P 500 earnings growth, so traders will be keyed into their results.
• First up is Tesla on Wednesday, with traders expecting $0.73 in EPS.
• The Nasdaq 100 is poised to close the day and week at record highs, and as long as $17K holds, bulls will remain in control.

Nasdaq 100 Fundamental Analysis

It wasn’t the smoothest start to 2024 for the “Big Tech” stocks that make up a disproportionate weighting in the Nasdaq 100, but they’ve quickly gotten back on track after the first week of the year.

A big factor driving the Nasdaq 100 higher of late has been strong US economic data. Between stronger-than-expected readings on the labor market (ADP and NFP in the first week of the year), price pressures (CPI in the second week of the year), and the consumer (retail sales earlier this week), it’s clear that the US economy outperformed expectations to finish last year.

A couple years back, the “growthy” technology stocks in the Nasdaq 100 would have struggled against a backdrop of the potential for “higher for longer” interest rates, they have matured since then and now are net beneficiaries of a strong economy and attendant high interest rates.

Now, with the “Magnificent Seven” stocks (Microsoft, Apple, Google/Alphabet, Amazon, Nvidia, Facebook/Meta, and Tesla) collectively trading at an eye-watering 50 P/E ratio, the only thing that could drag down the Nasdaq 100 may be poor earnings results.

Magnificent Seven Earnings Preview – MSFT, AAPL, GOOG, AMZN, NVDA, META, TSLA

Each of the Magnificent Seven stocks faces its own set of opportunities and challenges, but some common themes to monitor are the health of the consumer and the broader economy, as well as the impact of AI and growth of augmented/virtual reality devices.

On balance, the Magnificent Seven stocks’ earnings are expected to grow nearly 40% from the same period last year on 12% high revenues, according to Zacks analysts. According to LPL Financial, these seven stocks will make up more than 100% of the total earnings growth of the entire S&P 500 index, meaning that the “S&P 493” likely lost money across all of last year:

Source: LPL Research, Bloomberg.

Earnings aren’t the only fundamental metric on which the Magnificent outperform other stocks. Looking at factors like sales growth (Magnificent Seven expected near 11% over the next two years vs. 3% from the S&P 493) and net margins (~20% for the Magnificent Seven vs. ~10% for the S&P 493), there is no comparison, as the below charts from Goldman Sachs show:

Source: FactSet, Goldman Sachs Investment Research

Clearly, if you’re trading indices (and even if you’re not), it’s worth keeping a close eye on the Magnificent Seven stocks’ earnings results for the foreseeable future.

Below, we highlight the earnings dates and the market’s expectations for each of the Magnificent Seven stocks in order of their reporting dates:

• Tesla – January 24. EPS expected at $0.73.
• Microsoft – January 30. EPS expected at $2.76.
• Alphabet/Google – February 1. EPS expected at $1.59.
• Amazon – February 1. EPS expected at $0.79.
• Facebook/Meta Platforms – February 1. EPS expected at $4.83.
• Apple – February 1. EPS expected at $2.10.
• Nvidia – February 28. EPS expected at $4.50.

Nasdaq 100 Technical Analysis – NDX Daily Chart

Source: TradingView, StoneX

Based on the recent price action, Nasdaq 100 traders don’t seem particularly concerned about the upcoming earnings reports. As the chart above shows, the Nasdaq 100 is poised to close the day and week at fresh record highs above $17K, leaving little in the way of overhead resistance.

As long as next week’s earnings results from Tesla are able to meet expectations, the near-term path of least resistance remains to the topside for the index.  Traders will only get concerned if weak earnings reports start to accumulate and the index breaks below technical support in the 16,700 zone.

-- Written by Matt Weller, Global Head of Research

Follow Matt on Twitter: @MWellerFX