The S&P 500 is testing the growth of tech giants, heading for its best earnings season in two years

The S&P 500, which is up 17% so far this year, is peaking on the back of a twin push from big tech companies and buzz around artificial intelligence. Earnings season, which begins this week in the United States, will be a thermometer that investors and analysts will use to gauge how companies are doing. Corporate accounts could serve as a possible catalyst for the second half of the year for a market that sees the Federal Reserve taking its time to activate interest rate cuts and instead continuing to closely monitor growth, inflation and labor market data.

A consensus of analysts compiled by Factset remains upbeat, expecting S&P 500 companies to post a 9% rise in earnings in the second quarter, their strongest quarterly growth since the start of 2022, a period marked by a surge in food and energy prices following the outbreak of war in Ukraine . However, a growing number of experts are pointing out that overvalued Nvidia, Apple, Microsoft, Amazon and Meta could run into softer earnings than in previous quarters. Strategists at Deutsche Bank estimate these companies will grow earnings by 30%, down from 38% in the previous quarter.

Goldman Sachs analysts are more moderate, believing that large companies with the most exposure to artificial intelligence will see revenue growth of 17% year-on-year in the second quarter of the year. The investment bank also expects the percentage of companies to beat EPS growth expectations to fall in the upcoming earnings season as "consensus forecasts set the bar higher than in previous quarters." Citi Research adds that "high implied growth expectations" mean markets will likely need to see solid gains to sustain recent rallies or push the stock market higher. So far this year, the S&P 500 has hit a total of 34 record highs, prompting investment banks to revise their expectations for the full year several times.

The first test will come on Friday, when JP Morgan, Wells Fargo and Citi release their quarterly accounts. Morgan Stanley analysts believe that JP Morgan and Citi will accelerate their share buyback plans, so RBC strategists recommend overweighting large US entities over smaller banks, which are more exposed to a possible increase in delinquencies. So far, the three banks are up more than 21% year-to-date, more than the 16% gain seen by the S&P 500 banking sector.

The big tech companies don't release their earnings until the end of the month, and we'll have to wait until the 23rd for Nvidia's numbers, which posted a 262% increase in revenue and a 628% increase in profits in the first quarter of the year