Google Posts a Strong Report, But This Market Has Other Issues to Contend With
Big moves in anticipation of a Republican victory will create a very dangerous 'sell the news' situation next week.
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Alphabet GOOGL posted strong quarterly earnings on Tuesday night and the stock is trading up about 6% on Wednesday. Analyst comments and price target increases are rolling in, and market participants are optimistic about the reports from Meta META and Microsoft MSFT that will be issued on Wednesday night.
The primary market question is whether the Magnificent Seven stocks MAGS will regain their leadership role and continue to lead the market higher into the end of the year. The group lost some of its luster after second-quarter earnings reports as concerns built that more AI spending was needed and bottom-line results would be delayed. That is still an issue, but expectations in this area have been lowered, and that is what is helping Google produce a positive response.
The good report from Google will raise the bar for the other Mag 7 names reporting this week, but the first test will be to see how well Google holds on to its morning gap.
The response to these earnings reports comes in the middle of a very chaotic market atmosphere. Investors are trying to anticipate the ramifications of the upcoming election, and they are already dealing with a steady increase in interest rates.
Although some folks claim that the presidential election betting markets are manipulated, they are showing better than 60% odds of a Trump victory and fairly high odds of a Republican sweep. The stock market appears to agree with this assessment, which is one of the prime reasons that worries are building about a rebound in inflation. The concern is that Trump's pro-growth policies will strengthen the dollar and overheat growth while, at the same time, the Fed is starting to further easy monetary policy.
Another indication of the growing anticipation of a Trump victory is the strength of Bitcoin IBIT, which is holding over $72,000.
These big moves in anticipation of a Republican victory will create a very dangerous "sell the news" situation next week, and it will be even more difficult if there is no clear winner right away.
While the earnings from Google look good, there are many other factors at play right now that will ensure that it will be a bumpy ride.
Earnings from Eli Lilly LLY have arrived, and there was a very surprising miss. The stock is trading down close to 10% early Wednesday, which is going to hurt the drug and medical sector.
There are a lot of moving parts out there, and the chances of negative surprises are increasing.
At the time of publication, Rev Shark had no positions in any securities mentioned.
