After the market close Thursday we will have the most significant earnings of the quarter when Apple (AAPL) , Alphabet (GOOGL) , Amazon (AMZN) and Facebook (FB) all report. These four stocks have rallied many billions of dollars since the market low in March and combined with Microsoft (MSFT) are responsible for the bulk of the gains in the major indices.
Market-timing pundits have complained loudly about the narrowness of the market advance with these behemoths doing the vast majority of the heavy lifting. In many cases, the valuations are stretched far beyond what has been seen in the past and that is particularly worrisome as the Covid-19 crisis shows few signs of abating.
With the reports Thursday night, it looks like a near-perfect setup for a "sell the news" reaction to earnings but seldom is the market movement that simple and easy to predict.
Last week both Microsoft and Tesla (TSLA) sold off following better-than-expected earnings news, which has caused some increased caution in front of these reports and makes it less likely that there will be a rush to sell on solid numbers. Typically the big-cap FATMAAN stocks quickly find dip-buying support when they sell off on good news but market conditions have become choppier recently as there has been a push to rotate from expensive growth stocks into cheaper value names.
The action in the indices has been messy and chaotic lately as anticipation of some deeper correction action has grown. The arguments for why this market needs a rest are compelling and logical but have been offset by a hurricane of fiscal and monetary liquidity.
This morning Germany reported a larger-than-expected drop in GDP, which weighed on European stocks. U.S. GDP will be reported Thursday morning at 8.30 am ET. A record-setting drop of 34.7% is expected and is certain to cause a reaction. The bulls will argue that it is backward-looking data while the bears will point out that it shows that the recovery will not be as easy as the market seems to anticipate.
Macroeconomics and major earnings reports will dominate the headlines and cause some volatility but don't let that blind you to the aggressive speculative trading that continues to dominate under the surface of the market. Wednesday the electric vehicle sector suddenly came to life again and it is very likely that traders are actively hunting for the next pocket of momentum.
Seldom does the market have such an interesting mix of action. My game plan is to remain focused on aggressive trading of individual stocks while watching for broader, more correlated selling in the indices.