By Lewis Krauskopf

NEW YORK (Reuters). Investors believe that a flood U.S. quarterly reports will be forthcoming next week. These include megacap growth titans. This should confirm a firm profit outlook for American corporations and strengthen the case for stock after a rough start.

Next week, nearly 180 companies from the are expected to release their results. This is roughly half the market value of the benchmark index. These include four of the largest U.S. corporations by market capitalization, Apple (NASDAQ), Microsoft (NASDAQ), Amazon (NASDAQ) and Google parent Alphabet(NASDAQ).

In a context of Fed hawkishness, and an increase in bond yields, the latest earnings round comes amid concern about how policymakers might harm the economy while they battle the worst inflation for nearly forty years. The S&P 500 has moved lower in April and was down about 9.5% so far this year as of Friday afternoon.

Investors who are bullish on the stock market have come to expect solid corporate perspectives to sustain markets. They will be putting more pressure on businesses to provide solid forecasts and bottom-line results as tightened monetary policies continue to weigh on stocks. S&P 500 companies are estimated to increase earnings by 9% this year, according to Refinitiv IBES.

“It’s probably the strongest argument you can make for owning stocks at this point, that corporate profits are still very robust,” said Charlie Ryan, portfolio manager at Evercore Wealth Management. “Any degradation in corporate profit growth and the cadence of that would spook the market.”

Investors have always been quick to take out shares of disappointing companies, especially those with high valuations. Netflix (NASDAQ 🙂 is the most recent victim. Shares fell by 35% after Netflix reported its first loss in subscribers for a decade.

Though stocks have declined year-to-date, the S&P 500 still trades at about 19 times forward earnings estimates, above its long-term average of 15.5 times.

“We are in a show-me type of environment. Anthony Saglimbene (Ameriprise’s global market strategist) said that next week will be crucial for high-growth names and tech companies, particularly those with higher valuations. “They better prove that they deserve these multiples right now.”

Investors will zero in on results from Apple, Microsoft, Amazon and Alphabet, which combined have a market value of about $8 trillion and make up one-fifth of the weight of the S&P 500. As of Thursday, Apple was down 6.3% and Amazon 11% respectively, Alphabet fell 13.8% and Microsoft dropped 16.5%.

GRAPHIC: Megacap stocks vs S&P 500 – https://graphics.reuters.com/USA-STOCKS/MEGACAPS/lgvdwglgxpo/chart.png

These companies’ earnings expectations are low for the March quarter. According to Refinitiv data, Microsoft will increase adjusted earnings per share by 12 percent over the previous year, Apple by 22% and Alphabet by 0.7% respectively. Amazon reported a 49% decline. S&P 500 companies overall are expected to increase quarterly earnings by 7.3%.

“Expectations are low, but that doesn’t mean it’s not important,” said James Ragan, director of wealth management research at D.A. Davidson. “If we are going to hit that 9% (earnings growth) for the year or even better than that, it’s hard to imagine we are going to do that without having better-than-expected earnings from the megacap companies.”

Apart from the top four companies, results from many companies such as Facebook (NASDAQ) owner Meta Platforms and payment companies Visa(NYSE:) Mastercard (NYSE :), and oil majors are expected next week. Chevron (NYSE: Exxon Mobil (NYSE 🙂 and Coca-Cola (NYSE 🙂 Pepsico (NASDAQ:).

Investors will also be interested in the company’s ability to maintain profit margins in light of rising inflation. S&P 500 companies should see net income margins dip to about 13% in 2022 from a record 13.4% last year, JPMorgan (NYSE:) said in a note this week.

Of 99 S&P 500 companies that have reported so far, 77.8% reported earnings above analysts expectations, Refinitiv IBES said. The rate was higher than the average beat rate of 66% per quarter, which is consistent with 1994. However it’s lower than the 83% for the previous four quarters.

“The stock market is trading in this neutral range right now waiting for this barrage of earnings,” Saglimbene said. The market is “beholden to what companies say about the second quarter and beyond.”