/Need to Know: Why the S&P 500 needs Amazon to deliver on earnings

Need to Know: Why the S&P 500 needs Amazon to deliver on earnings


U.S. stocks have been approaching records again, just as a busy earnings week gets under way.

Trade and earnings optimism on Monday left the S&P

SPX, +0.69%

 0.6% away from a July 26 record close of 3,025.86. “A solid beat on earnings from Amazon is definitely needed to swing the S&P 500 into new highs,” says our call of the day from Peter Garnry, Saxo Bank’s head of equity strategy.

The e-commerce retailer

AMZN, +1.60%

will report after Thursday’s closing bell

AMZN, +1.60%,

with some worried about a strain on profits from one-day shipping costs and a slowdown in its Amazon Web Services (AWS) cloud-computing business. Increased regulatory scrutiny is also a worry.

“On the positive side AWS will most likely deliver strong growth and the advertising unit may surprise to the upside,” Garnry told clients in a note.

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But, he said, Amazon shares haven’t hit a new high since the third quarter of 2018, which reflects increasing hesitation from investors about paying a 100% premium versus the overall equity market for the company.

Investor appetite for the shares, which closed Monday at $1,785.66, could ebb sooner rather than later, Garnry told MarketWatch in a follow-up chat. He advises watching for early warning signs of margin compression (when input costs rise faster that what the product earns) on AWS and slowing top line, or revenue, growth.

“I think currently Wall Street’s estimates for 2020 and 2021 top-line growth are a little bit too optimistic, because it will be increasingly difficult to grow at this rate and the competitive landscape is changing,” said Garnry.

The market

Setting records looks like a stretch, with Dow

YM00, +0.07%,

S&P

ES00, +0.08%

  and Nasdaq

NQ00, +0.27%

 futures flat. In Europe, the FTSE 100

UKX, +0.45%

 is up and the pound

GBPUSD, -0.2160%

 is down as the government pushes on with its Brexit plan.

Read: FANMAG is in and it’s a bubble, says this money manager

The chart

Our chart of the day from hedge fund Crescat Capital’s recently published quarterly letter highlights cracks it sees in the stock market. Crescat Capital notes that micro-cap stocks — via the Russell Microcap Index

RUMIC, +1.35%

— are down 20% relative to large-caps since September 2018.

“They tend to be domestic-oriented businesses that have correlated strongly with the overall market throughout history. The S&P 500 looks like it is poised to play catch-up,” said Kevin Smith, chief investment officer, and Tavi Costa, portfolio manager.

The buzz

Earnings are rolling out from biotech group Biogen

BIIB, +1.57%,

consumer goods corporation Procter & Gamble

PG, +1.37%,

toy maker Hasbro

HAS, -1.48%,

motorbike maker Harley-Davidson

HOG, +1.39%,

conglomerate United Technologies

UTX, +1.13%,

package shipper UPS

UPS, +1.00%

 and McDonald’s

MCD, +0.65%,

to name a few. After the close, we’ll get fast-food company Chipotle

CMG, +1.20%

  and Snapchat parent Snap

SNAP, +7.84%.

Earnings previews: Intel , Microsoft

Disney’s

DIS, -0.48%

“Star Wars: The Rise of Skywalker” flick is already looking like a hit, amid record advance ticket sales and as the internet devours the latest trailer.

China’s Harbin Pharmaceutical

600664, +0.79%

 is reportedly weighing a bid for vitamin retailer GNC

GNC, +3.48%.

Read: CEO of this robo-taxi company believes it has the inside track on rivals

Existing-home sales are due later.

The tweet
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