Stocks are holding key support as a major week of news begins.
All four of the market’s trillion dollar companies will report earnings: Apple (AAPL), Amazon.com (AMZN), Microsoft (MSFT) and Alphabet (GOOGL). We’ll also get the first reading on last quarter’s gross domestic product and may see progress on a fiscal stimulus bill in Washington.
The flood of events follows an important week for the S&P 500, with the index testing a previous high of 3425. It managed to hold that level and recoup most of its losses, registering a decline of 0.5 percent between Friday, October 16, and Friday, October 23.
Technology and the Nasdaq-100 led the downside after Intel (INTC) and Netflix (NFLX) issued weak results. Housing stocks also took a beating as interest rates rose.
That same shift toward higher rates lifted banks, financials and small caps. Transportation stocks held a breakout above their 2018 highs. Energy and emerging markets were also strong. All those are potential signs of confidence in the economy. Investors may stick with the same sectors if Congress and the White House reach a deal on stimulus.
On the other hand, there could be worries about the coronavirus pandemic worsening after daily case totals rose to new records above 80,000.
S&P 500, daily chart, with select moving averages and levels.
Few Signs of Fear
Aside from the S&P 500 holding support at 3425 last week, other indicators have shown signs of confidence in the market:
- Cboe’s volatility index (“VIX”) has remained under 30 and made lower highs since March.
- Bonds, typically viewed as a safe haven, have steadily lost value since early August.
- Gold, another safe haven, isn’t rallying as Covid-19 cases rebound.
- The U.S. dollar has remained near its recent lows. Further weakness in the greenback could fuel risk-appetite in foreign stocks and emerging markets.
|Biggest Gainers in S&P 500 Last Week|
|Align Technologies (ALGN)||+40%|
|Norwegian Cruise Line (NCLH)||+13%|
|Under Armour (UAA)||+13%|
|Las Vegas Sands (LVS)||+12%|
The American Association of Individual Investors (AAII) also suggests ordinary savers are gaining confidence. Its latest weekly survey showed the highest bullish reading (35.75 percent) since April 9. Bearishness fell to its lowest level (33 percent) since February 20, immediately before the pandemic slammed markets.
Snap Leads Social Media Surge
Snap (SNAP) was one of the most important stories last week. The smaller social-media company not only crushed estimates as users spent more time on its platform. It also reported significant growth in advertising revenue. That spurred confidence in other web companies dependent on ads, including Facebook (FB), Twitter (TWTR) and Pinterest (PINS).
Apart from the stock market, Bitcoin (BTCUSD) rallied last week after PayPal (PYPL) let users buy cryptocurrencies on its platform. It was the latest sign of blockchain adoption by mainstream institutions. BTCUSD is now back to its highest levels in over a year.
FANG Earnings, GDP
This week is very busy, with major technology earnings and economic data. Two big political issues could also see progress or failure after long negotiations: stimulus in the U.S. and Brexit in Europe.
|Biggest Decliners in S&P 500 Last Week|
|Citrix Systems (CTXS)||-11%|
|Union Pacific (UNP)||-10%|
|Robert Half (RHI)||-8.8%|
New-home sales are the main economic report today. Twilio (TWLO) and NXP Semiconductors (NXPI) issue results after the closing bell.
Tomorrow brings durable-goods orders and consumer confidence. Caterpillar (CAT) is one of the big reports in the pre-market. Microsoft (MSFT) and Advanced Micro Devices (AMD) are due in the afternoon.
Wednesday features oil inventories. United Parcel Service (UPS), MasterCard (MA), Amgen (AMGN), eBay (EBAY) and Ford Motor (F) are some of the more important earnings reports.
Thursday is a huge day:
- The initial reading of third-quarter gross domestic product (GDP) is due in the morning.
- Initial jobless claims are due in the morning.
- Comcast (CMCSA), Shopify (SHOP) and Penn National Gaming (PENN) issue results in the premarket.
- Apple (AAPL), Amazon.com (AMZN), Alphabet (GOOGL), Facebook (FB) Twitter (TWTR) and Starbucks (SBUX) issue results in the postmarket.
Personal income and spending are due on Friday. Honeywell (HON), Exxon Mobil (XOM) and Under Armour (UAA) are some of noteworthy companies issuing results.
Next week is also extremely busy, with more earnings, Presidential elections, a Fed meeting and monthly job reports.
This article was written by David Russell, TradeStation Securities, Inc., part of the Monex Group Inc, published on 26/10/2020.
David Russell is VP of Market Intelligence at TradeStation Group. Drawing on nearly two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them appraised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.