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It's put-up-or-shut-up week on Wall Street, aka earnings season. Just shy of 180 companies on the S&P 500, worth close to half of the blue-chip index's market value, will report results by the time the closing bell tolls on Friday.

After Netflix's first-quarter horror show last week, the eyes of investors will be glued to results from Apple, Microsoft, Amazon, and Alphabet -- tech titans worth a combined $8 trillion, i.e. a fifth of the S&P 500. They could well make it over a very low bar.

Deflate Expectations

Heading into a crucial earnings week, there is plenty of anxiety already priced into valuations on Wall Street. The S&P 500 is down 11% year-to-date, reflecting the expectation of 10 rate hikes over the next 18 months in what some are calling a too-little-too-late battle against red-hot inflation. But against an ominous macroeconomic backdrop, corporate earnings have actually held in there:

  • A promising 78% of the 99 S&P 500 companies that have reported first-quarter results so far have beat analysts' expectations.
  • This year's average "beat" rate easily eclipses the historical average of 66% of overachievers since 1994.

This week, big tech is stepping up to the plate with a unique combination of tepid expectations (which some analysts say are begging to be blown away), and a complex of regulatory headwinds clouding the long-term outlook. After a 35% jump in global digital advertising revenue in 2021, Alphabet's earnings are expected to fall 0.7%. Analysts see Apple earnings climbing a meager 2%. Brian Belski of BMO Capital Markets explained to the WSJ: "Technology companies have a free pass right now, because the sector's down."

Next Hurdle Up: Even if the big tech firms perform well this week, they are staring down a heated escalation in European regulatory pressure that could soon dole out billions in penalties. Over the weekend, European policymakers agreed to reforms that would see online platforms with 45 million or more EU users fined up to 6% of their global annual revenues if they fail to crack down on illegal or harmful content. In the case of Facebook-owner Meta, that would be a $7 billion hit. The pressure is ratcheting up at home, too. In a bid against disinformation last week, former US president Barack Obama called on the US to reform a law that protects online platforms from liability for user content.