A knockdown, drag-out fight to the finish line for investors this week has one more big round to go.
After stocks managed to find their footing on Thursday, Amazon and Alphabet’s less-than-satisfactory results set up a mess for Friday. But hey, what did you expect?
“Given the technology sector helped lead U.S. indexes to fresh highs in 2018 and is so dominant, its performance in the current earning season was always likely to be pivotal to investor sentiment,” AJ Bell investment director Russ Mould told clients.
This is what 24 hours looks like in this market.... pic.twitter.com/OGi8ZgT4uO
— traderstewie (@traderstewie) October 25, 2018
Our call of the day flies in the face of the bears who are rampaging right now. It comes from Darrel Cronk, president at Wells Fargo Investment Institute, who says there’s no better time to go shopping for beaten-up stocks.
“We believe that this isn’t the end of the cycle or the bull market, and we favor deploying cash now—or even allocating incrementally over the coming days and weeks,” said Cronk, in a note that went out to clients Thursday. “Current conditions have the potential to create some of the best entry points into equity markets since the November 2016 elections.”
But investors must face up to the fact we are at the “end of easy”—a period that de`livered low volatility and above-average asset returns for stocks, bonds and currencies. “We believe higher volatility is a healthy thing markets, even if it adds angst for investors,” he said.
Opinion: Why stock prices should be higher in six months
Cronk notes that the market is still repricing for an economic pullback with lower earnings growth, the delayed impact of interest-rate hikes, peak fiscal policy stimulus in 2019 and a 15-month high in the dollar.
Cronk adds that investors are up against the algos right now. He urges investors to keep an eye on some big numbers in the near term, noting that a support level of 2,630 to 2,650 for the S&P 500 will be crucial for Friday’s session. Below that, investors will be looking at major price support from the February low of 2,532.
Those levels could get tested next week with jobs data and lots more results, including that other FAANG biggie — Apple.
Read: The Wall Street analyst who called this stock-market rout sees another nasty drop for the S&P 500
The Nasdaq COMP, -2.32% , S&P 500 SPX, -1.47% , Dow DJIA, -0.90% are all trading lower as the week winds down.
Opinion: Don’t sell now — we’re not heading into a bear market for stocks
Gold US:GCU8 is rising, as well as the dollar DXY, +0.14% except against the yen USDJPY, -0.40% while crude US:CLU8 is tumbling. The dollar/yuan USDCNH, +0.1107% has neared its lowest level in a decade.
Check out the Market Snapshot column for the latest action.
Europe SXXP, -0.91% is also logging losses, while Asia stocks were downbeat, led by a 1% Hang Seng HSI, -1.11% drop.
Read: The Wall Street analyst who called this stock-market rout sees another nasty drop for the S&P 500
The chart
Our chart of the day says this beaten down market is at a “technical buy.” It comes from Bank of America Merrill Lynch’s weekly “Flow Show”, which features an update to its bull/bear indicator. As shown below, that indicator is sitting at 3.0, but “yet to breach excessively bearish level” of under 2.0 needed for a major buy signal. It was at 3.4 last week.
What would take that indicator to a four-alarm buy signal? Unwinding by hedge funds on bullish oil positions, bigger outflows on emerging markets and high-yield bonds, says Merrill Lynch strategists. But even amid the latest week’s bumpy ride, they say their private clients aren’t panicking, with $8.5 billion in equity inflows.
The buzz
Even if Friday is quiet on the earnings front, after-hours action wasn’t, and Amazon AMZN, -8.35% is getting crushed after disappointing sales and a weak holiday-quarter forecast. Google parent Alphabet GOOGL, -3.36% is down as well after a revenue miss. In fact, none of the tech highfliers are escaping.
Read: Microsoft on track to pass Amazon in market cap after earnings reports
Also getting hit hard is Snapchat parent Snap SNAP, -14.41% after its user base shrunk, Elsewhere, Gilead GILD, -2.80% is down on its results.
Data showed third-quarter growth rose 3.5%, beating economists forecasts. Consumer sentiment data is due out later.
Trade worries are also simmering. U.S. officials said there won’t be any resumption of trade talks with China until Beijing comes up with solid proposals over forced technology transfers and other economic issues. China has given the U.S. a boost though, where Iran sanctions are concerned, saying it will cut some of its oil trade with the Middle Eastern nation.
An investigation into a string of pipe bombs is focusing on a postal facility in Florida.
The stat
$108.3 billion—that is how much so-called FANG (‘A’ is for Amazon in this instance, not Apple) stocks added in market cap on Thursday—the second-biggest one-day gain on record and the biggest since a $117.1 billion gain on Sept. 27, 2017. Obviously that picture might look different by Friday’s end as Amazon, Alphabet were two of the biggest contributors to that market-cap total.
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