Software Earnings Lift Nasdaq 0.5% Tomorrow

We expect the Nasdaq 100 (NDX) to close up 0.5% tomorrow, with the S&P 500 (SPX) rising 0.3%. The driver will be strong earnings and guidance from enterprise software names reporting after the bell. Today's session offers a clean read on digital transformation spending, and we expect it to be positive.

Zscaler (ZS) is the marquee name reporting after the close, and we see a 75% probability of an earnings beat, with an expected move of 6.0% upward for the stock. This reflects robust demand for cloud cybersecurity, as organizations continue to fortify their digital perimeters against evolving threats. A strong beat from Zscaler (ZS) will provide a positive read-through for the entire cloud software sector, including names like CrowdStrike Holdings (CRWD), which we anticipate will trade up more than 2% in sympathy. This signals that IT budgets are still prioritizing security, a non-negotiable spend category for most businesses.

DocuSign (DOCU) is another key enterprise software company reporting, with a 72% probability of beating consensus estimates and an expected 5.5% move higher. The company's performance will indicate sustained adoption of digital agreements and workflow automation, essential for operational efficiency. Strong results here underscore the ongoing shift away from manual processes across industries, benefiting companies that enable this transformation, like UiPath (PATH), which we expect to rise at least 3% in aftermarket trading. This confirms that businesses are still investing in tools to streamline operations and enhance productivity, even in a higher-rate environment.

In contrast to the software strength, Lululemon Athletica (LULU) reports earnings after the close, and we anticipate a 50% probability of an earnings miss, leading to a 4.0% decline. The luxury athletic apparel market is facing increased competition and potential softness in discretionary consumer spending. This result would act as a cautionary signal for the broader consumer discretionary sector, highlighting that not all segments of the economy are enjoying the same tailwinds as enterprise software. This suggests that while businesses are investing, consumers might be tightening their belts.

The biggest risk to this thesis would be if Zscaler (ZS) or DocuSign (DOCU) provides a significantly weaker-than-expected outlook for the next quarter. A surprise miss on guidance from either of these bellwether software names could quickly reverse the positive sentiment and drag down the broader technology sector, causing the Nasdaq 100 (NDX) to close flat or negative.