The most jam-packed earnings week for the quarter lies ahead, led by these two market bellwethers

By Bill Peters

'Its clear that Apple is navigating one of the more difficult China demand environments we have seen the last 5 years,' analyst says

This week, 175 companies in the S&P 500 index report quarterly results, making it the busiest for the U.S. earnings reporting season overall. But amid the stampede, much of Wall Street's attention will be on two of the massive companies that can make or break any given quarter for markets overall - Apple Inc. and Amazon.com Inc.

For Amazon (AMZN), which reports on Tuesday, analysts were increasingly focused on the e-commerce giant's ability to become a bigger media company as cloud-services growth shows signs of cooling.

For Apple (AAPL), analysts are zeroed in on weaker demand in China, the iPhone upgrade cycle, Vision Pro demand and the company's position in big tech's artificial-intelligence race. Apple reports on Thursday.

Those results arrive amid some pressure on their stocks, and after results from their Magnificent-Seven peers - Meta Platforms Inc. (META), Alphabet Inc. (GOOGL) (GOOG), Microsoft Corp. (MSFT) and Tesla Inc. (TSLA). While Meta's AI-heavy spending forecast spooked investors, the group still packed on hundreds of billions of dollars in market value last week.

Still, those gains came after a record weekly decline for the group. Some in the investing universe took notice.

"Thus far, earnings season has been wild," said Mike O'Rourke of Jones Trading. "The market is loving Tesla at 65x forward earnings after missing, and hating Meta Platforms at 22x forward earnings after beating."

Tesla's profit and sales fell during the first quarter. But investors, for now, have bought into Elon Musk's promise for an accelerated arrival of a more affordable electric vehicle.

Amazon and Apple will offer up results amid ongoing concerns about higher prices for essentials and their potential impact on spending online, and for electronic devices. But a FactSet report on Friday found that amid those concerns, net profit margins for S&P 500 companies were still holding up.

Those margins stood at 11.5% for the first quarter so far, higher than the prior quarter but in line with the prior year. Price increases and cost cuts have padded margins. Some analysts and economists say corporate America, which has kept prices elevated in an effort to juice profit and keep Wall Street happy, has been a big source of the current inflation.

Amazon is spending billions on AI and development in its massive cloud services segment, AWS. But Daniel Morgan, senior portfolio at Synovus, raised questions about how much that segment could still drive growth for the company, as it faces competition from Microsoft and as businesses, who have been cautious about the economy, still exercise some restraint on their IT budgets.

But he said that another focal point during Amazon's earnings call could be its advertising business, where businesses pay to market on its e-commerce network and on Prime Video.

"After COVID-19 accelerated overall e-commerce penetration and the shift toward a digital economy, advertising has become an even more important opportunity for AMZN in terms of both revenue and margins," he said.

Benchmark Research also noted that competition for live sports has become increasingly important for Amazon, which currently broadcasts Thursday Night Football. And the Athletic reported that Amazon could be among the places to watch future NBA games. More commentary could surface on Amazon's earnings call.

Meanwhile, Apple's results will follow a report from research firm Counterpoint that found that iPhone sales volumes in China fell 19% during the first quarter, as that nation's economy slows and competition with China-based conglomerate Huawei remains steep.

"Its clear that Apple is navigating one of the more difficult China demand environments we have seen the last 5 years as a combination of factors has created a perfect storm for Cupertino in this key market," Wedbush analyst Dan Ives said in a research note this month.

He said reported iPhone bans across a growing number of government agencies in China also posed difficulties for Apple, but he and other analysts said there were a number of positives to watch out for as well.

Over at BofA, analysts said there was still a "rich catalyst path" for Apple this year. Along that path were things like potential AI-related announcements in June at Apple's Worldwide Developers Conference and the upcoming iPhone 16. And they expected solid sales growth in Apple's services segment, which includes its cloud services and Apple Music and Apple TV.

Ives said the iPhone 16's launch could benefit from more people looking to upgrade their phones. And he said his optimism about Apple was "all about navigating this next 1-2 quarters and getting on to the other side of easier comps."

This week in earnings

Elsewhere, Molson Coors Beverage Co. (TAP) reports, as some analysts cast doubt over its future growth after benefiting from last year's conservative-led Bud Light boycott. For more context on consumer spending, look to earnings from PayPal Holdings (PYPL), Mastercard Inc. (MA), and Block Inc. (SQ). Results are also due from Ticketmaster parent Live Nation Entertainment Inc. (LYV), following a report of a possible antitrust suit from the Justice Department.

3M Co (MMM), Coca-Cola Co. (KO), Advanced Micro Devices (AMD), Pfizer Inc. (PFE) and Moderna Inc. (MRNA) also report.

The call to put on your calendar

Paramount: Paramount Global reports on Monday, as Wall Street looks watches for updates on a possible merger with Skydance Media, the company behind "Top Gun: Maverick" some "Mission: Impossible" films. The merger would be the latest entertainment-industry consolidation, as studios and streamers try deliver better streaming profits for investors and cut costs and pull back on TV filming following last year's strikes.

Reuters reported this month that Paramount and Skydance had agreed to enter into exclusive merger talks, following reports of bids from others. In the process, Paramount's board was weighing whether to replace Chief Executive Bob Bakish, the Wall Street Journal reported. Either way, the call could be a source for more drama, or at least an update on the media industry's precarious state.

The number to watch

Restaurant sales, low-income spending: During its last round of earnings, McDonald's Corp. warned that lower-income diners weren't spending as much. Some analysts have wondered how big that problem is, as dining out stays more expensive after restaurants raised prices to cover rising ingredient costs and higher wages and nurture profit margins. The burger chain's results on Tuesday will offer more color on those trends. So could results from other chains during the week, like Starbucks Corp. (SBUX), Burger King parent Restaurant Brands International (QSR), Shake Shack Inc. (SHAK) and Wendy's Co. (WEN).

-Bill Peters

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04-28-24 1001ET

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