Earnings from Apple (AAPL) , Amazon (AMZN) , Facebook (FB) and Alphabet (GOOGL) were all better than expected but the question for market participants to ponder is to what extent those reports are already priced into the market?
There are already some signs of a 'sell the news' reaction with Alphabet in negative territory and the S&P 500 indicated up only about 0.5% after the impressive news. Even if Apple and Amazon manage to hold on to their early gains can they lead the broader market higher or will we see a rotational correction gain steam?
For market timing bears these reports from the leading big-cap growth names are a perfect catalyst for a market reversal. The argument is that the market has already fully priced in the good news and will be unable to move much higher especially with the daunting economic issues that lie ahead.
In the Wall Street Journal's Heard on the Street column this morning the bearish case is stated succinctly. Market participants seem to be doing an unusually good job of looking beyond the economic damage caused by the Covid-19 crisis and have likely already priced in the anticipated recovery to a great degree. If they are wrong about either the economic support provided by fiscal and monetary policy or failure to fully discount the damage done by the virus, then the market will be vulnerable to the downside.
This bearish argument is not a great revelation. The more important issue is whether it will start to be reflected in the market action. So far there are no signs that there is much worry but that can change quickly. We need to stay vigilant and react swiftly as price action shifts.
I have been loudly proclaiming lately that it is better to focus on stock picking than market timing. My view of that will change if we start seeing more correlated selling. Right now the opportunities lie in aggressive trading of individual stocks but there are signs of narrowing, and some of the big momentum movers like Kodak (KODK) have faded very fast.
We will see how well the FATMAAN stocks and the Nasdaq 100 hold up today. I'll be watching for rotational action to develop. I suspect that we are more likely to see corrective action in the form of a rotation rather than broad selling in the indices.
Precious metals are jumping this morning after a few days of rest and that may be a sign that market players are leading toward a more defensive posture as they watch how this market deals with very strong earnings news.