Alphabet Calms Some Nerves — But Also Raises the Bar
The risk of being caught by bad news is increasing for those yet to report earnings.
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Monday’s vigorous rotation into small-cap stocks partially reversed on Tuesday as hopes for strong reports from the Magnificent Seven MAGS names bubbled up. Breadth was negative, with around 4,000 gainers and 5,500 losers, but the Nasdaq 100 QQQ gained nearly 1% in regular sessions.
After the close, Alphabet GOOGL posted strong numbers and beat both revenue and EPS estimates. The company stated that momentum across the company is "extraordinary," and the investment in AI is starting to pay off. We’ll see how the conference call goes, but the stock is trading up about 6% on the day after the news.
There was some nervousness during the day Tuesday but Google’s report should calm some nerves but it does raise the bar for other reports. The risk of being caught by bad news is increasing, but increased caution also increases the likelihood of FOMO and short squeezes.
On Wednesday, there is GDP economic news in the morning, followed by earnings from Meta META and Microsoft MSFT after the close. The key issue with the Mag 7 earnings reports will be whether good news will be able to generate sustained momentum. Is Google going to start attracting new buyers and trend higher from here on that report?
The biggest danger in the market remains a chaotic election next week, and I expect to see cautious positioning. The trading action continues to indicate a strong belief that Trump will win, but that doesn’t mean that the election will be determined at an early point.
While I am becoming a little more cautious, the price action is still quite favorable and earnings are supportive of more upside.
Have a good evening. I’ll see you Wednesday.
At the time of publication, Rev Shark had no positions in any securities mentioned.
