The disappointing quarterly results from Microsoft and Alphabet matter quite a bit to those companies and the stocks of closely adjacent to them, but the fortunes of Big Expensive Tech do not dictate the tone of the tape and haven’t for most of the year. A market that bottomed (for now) in dramatic fashion on a bad inflation report nearly two weeks ago now reverses higher on FAANMG earnings misses, speaks to a more nuanced market, one driven by macro expectations and with most stocks already severely revalued lower over the course of the past year. At the broad S & P 500 level, it computes to a continuation of a strong rebound rally carrying the index above its 50-day average and approaching a potentially stiffer test between 3,900 to 4,100, the upper reaches of the post-April range. The move is now looking a bit aggressive, and it will probably look overbought after Wednesday on a short-term basis. But a forceful surge off a significant low (the Sept. 13 low at the 200-week moving average) that generates decent momentum and gets overbought is consistent with a potential —unproven but possible — bottoming process underway. The other ingredients: Washed-out sentiment and positioning coming into October, seasonal strength especially in midterm election years, an economy that hasn’t fully registered recessionary hallmarks, companies navigating things OK and the Federal Reserve possibly getting toward a moment to slow/pause rate hikes. Clearly a lot is in place as fuel, but much must also go right in that litany. Bank of Canada with a smaller-than-expected rate hike on Wednesday got Fed pause hopes moving. Dollar uptrend has cracked for now, and Treasury yields are in retreat. For sure, the market could only withstand a certain amount of severe shortfalls by huge index components. If Apple , Amazon and Meta whiff and make it seem like downside fundamental momentum is picking up, that’d be a tougher test. But as noted, GOOGL valuations have compressed quite a bit into the report and even with Wednesday’s stock drop it’s only back to where it traded several days ago. A dangerous word in investing, granted, but “contained” seems to apply to this reaction. The “average stock” has been smoked (average decline among S & P 500 members peak to trough has been 35%, for Nasdaq 50%). But on balance the rank-and-file have held up as a group better than the growth giants that led the market higher into the late-2021 peak. Here’s the equal-weight S & P 500 versus Nasdaq 100 this year, a massive 13-percentage-point spread and the “typical stock” in a sturdier trend above mid-June lows. META has traded poorly both before and since the GOOGL results, a broken stock with lack of sponsorship and massive questions about strategic missteps coloring investor perception. Not suggesting we should expect a quick turn, but it’s interesting how bereft Netflix looked not long ago. Granted, the stock had started to base ahead of the latest upbeat results more than META’s has so far. But worth recalling that the rubber band is pulled pretty tight on META — could snap, or snap back. Market breadth on NYSE quite strong again, another 80%+ upside volume day. The VIX is finally buckling, doing so in a delayed spiking/retreat mode that shows tension release. The rally plus lots of divergent stock-specific action allowing some air out of the VIX.
