It could mean boom or bust for the rest of the stock market, says Mark Tepper, president and CEO of Strategic Wealth Partners.
“These two companies definitely have the potential to really define this earnings season,” Tepper said on CNBC’s “Trading Nation” on Thursday. “If they come up short, the market is going to continue to spiral out of control. If they’re strong, they have the ability to actually turn this market around.”
Gina Sanchez, CEO of Chantico Global, agrees that the market’s response to an earnings beat could be the biggest tell as to whether a run from growth stocks is a longer-term trend.
“That’s really going to be the litmus test of sentiment because these were the leaders,” Sanchez told “Trading Nation” on Thursday. “We need to see these companies reestablish leadership in order to feel like this latest stock rout was a short-term thing. If not it could be an indicator that this is a longer-term repricing. So I think watching the response is going to be very important particularly if they beat.”
Before October’s sell-off, Amazon had surged 53 percent for the year, while Alphabet had added 14 percent. So far this month, Amazon has dropped 11 percent and Alphabet 8 percent.
While Tepper expects a solid overall quarter for Amazon, he says high growth in some of its more closely watched businesses is the more closely watched metric for investors.
“What’s really most important is the profitability of their higher margin businesses – so that’s cloud computing, advertising, and third-party retailing. These businesses are growing so fast and the margins just continue to expand,” he said.
On Google parent Alphabet, Tepper places emphasis on success in its advertising business.
“The one thing to really pay attention to with them is Adwords,” he said. “I’m really looking for better than expected growth here as Facebook advertisers have likely peeled away from Facebook as their advertising platform has become less effective and they’ve probably redirected those marketing dollars toward Google.”