All eyes on Amazon and Apple as earnings loom

U.S. equities pushed higher on Tuesday as Wall Street entered the thick of second-quarter earnings season. The S&P 500 ended 0.3 percent higher, notching a new record of 2,477. While the Federal Reserve kicked off a two-day policy meeting on Tuesday, investors aren't focusing on the risk of another rate hike but on corporate earnings.

And so far, the news has been more good than bad. But the stakes are rising ahead of results from two big-tech heavyweights -- Amazon (AMZN) and Apple (AAPL) -- in the days to come.

First, the good news: McDonald's (MCD) and Caterpillar (CAT) beat expectations in their reports on Tuesday and got rewarded with healthy share price gains of 4.75 percent and 5.8 percent, respectively.

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McDonald's landed at a new record of $159.07, thanks to a 6.6 percent rise in global same-store sales as the breakfast-all-day initiative gives way to the "Experience of the Future" push that promises to see smart tablets enable custom ordering and VR-connected Happy Meals. Caterpillar shares exploded higher (chart above) on the company's solid results, especially overseas, and its raised forward guidance.

Now, the bad news: 3M (MMM) and United Technologies (UTX) disappointed, and their shares declined 5 percent and 2.2 percent, respectively.

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Google parent Alphabet (GOOGL) suffered a 2.6 percent drop on Tuesday to once again test its 50-day moving average (chart above) after reporting better-than-expected earnings and revenue on Monday night. But profit margins dropped to 16 percent from 28 percent amid price pressure on ad sales and the drag from a $2.7 billion fee paid to the European Union.

Analysts at Aegis Capital noted that the cost of acquiring Google customer traffic increased at a 28.1 percent annual rate vs. a 22.2 percent rate in the first quarter. That represents the highest increase in nine years. Moreover, heightened competitive pressures -- especially in mobile -- necessitated capital spending in hardware, YouTube content and cloud computing, further buffeting profitability.

This was just a warm-up for tech investors, however, as Amazon's highly awaited results come out after the close on Thursday. Analysts are looking for earnings of $1.39 per share on revenues of $37.2 billion. When the e-commerce giant last reported on April 27, earnings of $1.48 per share beat estimates by 38 cents on a 22.6 percent increase in revenues from the year prior.

Keep an eye on the balance between smaller but high-margin businesses like Amazon Web Services and Fulfillment by Amazon vs. areas of investment such as video content.

Apple will report on Aug. 1 after the close. Both iPhone and China sales will be in focus again, and they'll likely show a slump ahead of the eagerly awaited iPhone 8 release later this year. 

According to RBC Capital, the newest Apple smartphone could be delayed because of supply-chain issues with its new organic LED display. Analysts don't expect volume shipments to occur until November or December vs. mid to late September historically for new iPhones.  

Overall, second-quarter earnings through Friday have been positive. According to FactSet, with 19 percent of the companies in the S&P 500 reporting, 73 percent have beat their earnings estimates and 77 percent have beat their sales expectations. The forecast for the S&P 500 earnings growth rate stands at 7.2 percent. 

  • Anthony Mirhaydari

    Anthony Mirhaydari is founder of the Edge , an investment advisory newsletter, and Edge Pro, options newsletter. Previously, he was a markets columnist for MSN Money; a senior research analyst with Markman Capital Insight, a money management firm; and an analyst with Moss Adams focusing on the financial services industry.