It’s the busiest week of fourth-quarter earnings season, with 129 S&P 500 companies scheduled to report. Another two of the Magnificent 7 are scheduled to release earnings. Beyond the two Magnificent 7, notable companies scheduled to report earnings include Walt Disney, IDEXX Laboratories, Palantir Technologies, PayPal Holdings, PepsiCo, Take-Two Interactive Software, Chubb, and Eli Lilly.
## Earnings Season At A Glance
According to FactSet, 75% of S&P 500 companies have reported earnings above the consensus estimates, with 33% of companies having released results. The S&P 500 rose modestly last week. The Magnificent 7, consisting of Microsoft, Meta Platforms, Amazon.com, Apple, NVIDIA, Alphabet, and Tesla, outperformed the market. Small-cap stocks underperformed the S&P 500 last week but have made a strong showing so far this year.
## Earnings Estimates Summary
Companies reporting and combining actual results with consensus estimates for companies yet to report, the S&P 500’s blended earnings growth rate for the quarter improved to 11.9% year-over-year for the week, well above the 8.3% expectations at the end of the quarter. Notably, the expected earnings growth rate for calendar year 2026 eased to 14.3%.
## Market Performance
Markets sent mixed signals about any increase in recession risks. Small-cap stocks were lower, and they are geared to economic growth expectations. But banks traded higher, though that could be due to the nomination of Kevin Warsh to the Federal Reserve, as he will push for further financial deregulation.
The Magnificent 7 remains the group to watch this earnings season. Four of the Magnificent 7 companies reported results last week: Tesla, Microsoft, Meta Platforms, and Apple. All reported earnings were above consensus expectations. Despite all the results coming in above consensus, the market reaction varied: Microsoft and Tesla were down on the week, while Apple and Meta Platforms traded higher. Despite 15% year-over-year revenue growth and a 47.1% operating margin above consensus, the focus was on Microsoft’s Azure cloud business growing at ‘only’ 38% year-over-year, which was above consensus but below the whisper numbers. The naysayers also focused on capital expenditures growing by 89% year-over-year. Microsoft was down almost 8%, which looks like an overreaction as the underlying business remains strong and Azure remains capacity-constrained, so artificial intelligence (AI) and traditional cloud demand remain robust.
On the other side of the coin, investors embraced Meta’s earnings, sending the stock almost 9% higher for the week. Meta sales grew 24% year-over-year and had a 41% operating margin. AI spending continues with capital expenditures expected to be $125 billion in 2026. Despite the pressure on margins from the AI-spending, the core Meta advertising business is firing on all cylinders, and there is clear evidence that AI is helping to make the ads more effective. The combination of increased ad efficiency and usage of Meta’s social media properties makes the ads on the platform more valuable. Thanks to this tailwind, Meta forecasted 25% sales growth for 2026. Two of the Magnificent 7 companies, NVIDIA and Alphabet, are scheduled to report earnings this week. NVIDIA’s high-margin AI business has been a key growth driver for the company. Alphabet, the parent company of Google, has also seen strong growth in its cloud business, which has been a key contributor to the company’s earnings. The Magnificent 7 remains the group to watch this earnings season, as these companies are critical drivers of earnings growth and account for a significant percentage of the S&P 500’s market capitalization.
