The US stock market faces a major test with tech earnings reports, but good news is no longer driving the market

The U.S. stock market is currently in the eye of the storm of tech giants' earnings reports, and the harsh reality facing investors is: even if performance exceeds expectations, stock prices are unlikely to receive the returns they deserve.

This week, the U.S. stock market will welcome a series of heavyweight tech giants (including Meta, Microsoft, Amazon, and Apple) reporting their earnings. Renowned TMT analyst Peter Callahan pointed out in his latest report that in the current complex macro environment, investors should closely monitor the outlook guidance of these companies rather than just focusing on the quarterly performance, as the current market environment has clearly indicated: even if performance exceeds expectations, it may not lead to the anticipated rise in stock prices.

Callahan noted in the report that under the current macro environment, companies with performance exceeding expectations only see an average increase of 50 basis points the next day (T+1), far below the historical average of 101 basis points, while companies that fail to meet expectations drop by 247 basis points, which is more severe than the historical average drop of 206 basis points.

It is also worth noting that nearly 40% of the companies in the S&P 500 index by market capitalization will report earnings this week, along with Friday's non-farm payroll data, marking a critical moment for the market. This will be an important period that determines the short-term direction of the market.

Good news can't drive the market anymore

The Nasdaq rose 6.5% last week and has increased by 1% so far in April. Callahan believes this rebound is driven by multiple factors: better-than-expected earnings reports (with the tech, media, and telecom sectors showing the highest surprises), reduced volatility (VIX has fallen to the mid-20s), a stable interest rate environment (10-year yield around 4.25%), clearer positioning (according to Goldman Sachs data, tech stock exposure is close to multi-year lows), and improved policy outlook (the U.S. economic policy uncertainty index has returned to March levels).

But there is a harsh reality: even if a company's earnings report exceeds expectations, it does not receive the recognition it deserves in the capital market. Callahan's report indicates that under the current macro environment, companies with performance exceeding expectations only see an average increase of 50 basis points the next day (T+1), far below the historical average of 101 basis points, while companies that fail to meet expectations drop by 247 basis points, which is more severe than the historical average drop of 206 basis points.

This phenomenon was perfectly illustrated by Google— the company delivered better-than-expected earnings last Friday, but its stock price only rose about 1.5% that day.

Callahan pointed out that although the overall earnings surprise rate of the technology sector is currently higher than that of other industries, investors' reactions to performance have become more cautious, indicating that market concerns about the outlook have taken root.

Hidden Concerns Behind a Strong Earnings Season

From a fundamental perspective, the technology, media, and telecommunications sectors have outperformed market expectations in the early stages of the earnings season. This suggests that while investor sentiment may have quickly turned pessimistic, the actual behavior of businesses and consumers has not shown significant deterioration.

In other words, the market may be overly "prescient," reflecting potential negative situations in advance, while the actual operating conditions of companies have not yet manifested these issues. Therefore, despite companies exceeding expectations, the "surprise" performance has not brought about significant stock price returns as it has in the past, due to the market having already digested pessimistic expectations in advance.

Currently, most of the companies that have released earnings reports are top tech firms like SAP and Google, which have performed exceptionally well. However, more important companies such as Apple, Amazon, Microsoft, and Meta will also be releasing earnings reports soon. The market will use these reports to determine whether the previous strong performance is merely a temporary "highlight" or a sustainable "norm."