Key Takeaways
- Major Tech Earnings This Week May Shift Market’s Overextended Position
- High Market Volatility Expected Amid Economic Data, Election Uncertainty
- Bullish Activity Focuses On Microsoft, Meta; Apple Remains Neutral
With little in the way of economic data of household name earnings last week, stocks hovered in a bit of a holding pattern. But that is likely to change as this week is filled with both important economic reports, as well as earnings.
Just over 35% of the S&P 500 has reported earnings so far this quarter. Based on what has been reported and what is estimated to be reported, it is expected that earnings will grow by 3.6% year-over-year. However, I would add a caveat to that. The companies reporting this week, which include Amazon, Apple, Meta Platforms, and Microsoft among others, could dramatically change the quarter’s outlook. Still, as things stand currently, the 12-month forward-looking price-to-earnings (P/E) ratio is 21.7 and remains well above its five and ten year historical average of 19.6 and 18.1, respectively. Therefore, unless we do in fact see a dramatic increase in earnings growth, one could argue this market is in danger of being overextended.
On the earnings front, the company we’re seeing with the most bullish activity at our tastytrade brokerage is Microsoft. Microsoft is one of the companies retail traders often turn to when markets are weak. Another company seeing a lot of bullish activity is Meta Platforms. Despite being up over 60% this year, investors seem to still be enthusiastic about the company’s potential. The stock where we’re seeing a lot of neutral activity is Apple. I think this is likely attributable to the run we’ve seen since August with the stock up nearly 18%.
Some of the other companies reporting this week which I’m interested in including Chipotle and Starbucks. After hiring Brian Niccol away from Chipotle to run Starbucks, I think we’re all interested in hearing a concrete set of proposals he has for righting the ship. At the same time, I’m equally interested in what Chipotle’s new CEO, Scott Boatwright has to say. Much like a new coach coming in to take over an already successful team, I’m curious if it will be business as usual with Chipotle, or if Boatwright will seek to place his own stamp on the company.
Taking a look at the economic calendar, it’s a huge week made all the more important because of how it could impact next week’s election. On Tuesday, we’ll get the latest report on job openings. The most recent read on inflation, the Personal Consumption Expenditures (PCE) Index is due out Thursday. And then on Friday, the employment report for October is set for release.
With so much data coming our way and an election just over a week away, it’s probably not too surprising to see the options in the S&P 500 are implying an expected move this week of over 90 points. That is a very large expected move in real dollars and in percentages is about 1.5%. If you’re new to trading or just looking to learn more, expected moves are often bigger when there is more fear in the market. That fear is expressed as volatility and for more experienced traders, we realize there can often be opportunities in trading on that volatility. Getting educated on how, is something that is an important step in many investors’ understanding of markets. Regardless of whether or not you want to trade all the activity coming up or not, it’s probably safe to say we’re in for a couple weeks of eventful market activity.
For today, it may be a day that is about investors setting up for the rest of the week. Not only do we have all the earnings, but in a quirk of the calendar, the employment report is on Friday, which we rarely see when the first Friday is the first day of the month. One company that continues to be interesting and I’m keeping an eye on today is Boeing. The company completed an equity and debt offering that generated cash to keep operations running. As always, I would stick with your investing plans and long-term objectives.
tastytrade, Inc. commentary for educational purposes only. This content is not, nor is intended to be, trading or investment advice or a recommendation that any investment product or strategy is suitable for any person.