The Three 'E's' Guarantee Elevated Market Volatility
It is an extremely tricky market right now. This is how I'm approaching it.
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After the market was pounded Thursday following earnings from Microsoft MSFT and Meta META, there was a mild bounce on Friday morning as mixed earnings from Amazon AMZN and Apple AAPL were digested. Amazon is 6% higher following a solid report, while Apple AAPL is 1% lower on mostly in-line results.
The market will turn its attention to the October jobs report on Friday morning and will also start focusing more on positioning for the election on Tuesday. The potential for elevated volatility is extremely high as earnings, economic news, and the election produce a tremendous amount of uncertainty.
The market still needs time to digest the four big earnings reports from Magnificent Seven MAGS names in the last two days, but the preliminary assessment is that these stocks no longer have the juice they once had.
There is talk about how AI is starting to pay off, but very large capital investments will continue, and the eventual payoff is already built into valuations to a great degree. The Mag 7 has been lagging since second-quarter earnings, and that looks like it may continue. The issue is what the rest of the market will do.
What the rest of the market will do in the very short term will depend on what happens with the election. If there is not a clear and immediate winner, it is likely to be a significant market problem. The hostility level out there is already at extreme levels, and it will only become worse if the two sides have to battle over a very small number of votes.
The economic news is also in a state of flux. Interest rates have been trending higher for weeks after the Fed cut rates by a half-point, and there is growing concern that a Trump victory will be inflationary as it boasts growth and strengthens the dollar.
The jobs report due at 8.30 am ET on Friday morning will be particularly important as there appears to be some weakening in the employment market, but strong numbers are going to put more upside pressure on rates and cause worries that the Fed will pull back on rate cuts.
It is an extremely tricky market right now, and I am using shorter time frames to try to capture some of the increased volatility. Stay very vigilant and be ready to move quickly.
At the time of publication, Rev Shark had no positions in any securities mentioned.
