On Wednesday, the market was steady, awaiting fresh triggers from mega-cap earnings, upcoming inflation and jobs data, as well as next week’s Federal Reserve meeting and elections. Earlier mixed data offered little guidance, leaving investors hesitant to make substantial new moves with so many pivotal events ahead.
Post-close, Microsoft (MSFT) and Meta Platforms (META) released their earnings, with Amazon (AMZN) and Apple (AAPL) following on Thursday afternoon. Microsoft’s results exceeded expectations, causing a 2% surge in after-hours trading, while Meta also beat forecasts but saw its shares dip by 2%.
After leading on Tuesday, the tech sector lagged on Wednesday, dragged down by a weak outlook from Advanced Micro Devices (AMD), which caused the PHLX Semiconductor Index (SOX) to drop 3%. Nonetheless, additional mega-cap earnings might reveal more about chip demand. Communication services led sector gains following Alphabet’s (GOOGL) strong results.
Major U.S. Indexes Near Flat, Small Caps Outperform on Easing Yields
The major U.S. indexes spent most of the session near flat, keeping the market steady and ending with slight losses as small caps outperformed amid easing yields. Treasury yields were steady, closing a prolonged rally tied to strong economic data and pre-election nerves. Recent figures, including GDP and the ADP jobs report, offered mixed signals, adding to market uncertainty.
- S&P 500® index (SPX) decreased by 19.25 points (-0.33%) to 5,813.67.
- Dow Jones Industrial Average® ($DJI) fell by 91.51 points (-0.22%) to 42,141.54.
- Nasdaq Composite® ($COMP) dropped by 104.81 points (-0.56%) to 18,607.93.
- Cboe Volatility Index® (VIX) edged up to 20.14, indicating increased volatility.
Q3 Growth Steady Amid Mixed Market Signals as Fed Meeting Looms
The U.S. economy continued its growth streak in Q3 with GDP rising at an annualized 2.8%, keeping the market steady and showing resilience despite high borrowing costs. This performance, supported by robust consumer spending and government investments, illustrates ongoing strength and adaptability, particularly as productivity gains from technological investments take hold.
In the bond market, Treasury yields have steadied, adding to the market’s steady outlook, and inflation, as measured by the Fed’s preferred PCE index, has softened to a manageable level. The 10-year Treasury note yield (TNX) declined by one basis point to 4.27%. As the Fed leans towards rate adjustments in upcoming meetings, investors remain keenly aware of these economic signals, gauging the balance of consumer strength and inflation control as the election approaches. The Treasury Department announced it does not foresee increasing auction sizes in the near term, likely helping Treasury yields stabilize and contributing to a steady market. As of late Wednesday, the CME FedWatch Tool indicates a 95% likelihood of a 25-basis-point cut at the Fed’s November 6–7 meeting, with a 5% probability of no rate change.
Upcoming Economic Data to Watch
- The Fed’s preferred inflation gauge, the Personal Consumption Expenditures (PCE) price index, is set for release Thursday morning, followed by Friday’s nonfarm payrolls report. The third-quarter GDP estimate came in at an annualized growth rate of 2.8%, slightly below the anticipated 3%.October’s nonfarm payrolls on Friday, projected at 115,000 new jobs with a 4.1% unemployment rate.
- October’s nonfarm payrolls on Friday, projected at 115,000 new jobs with a 4.1% unemployment rate
Homebuilders Thrive Amid High Rates, Limited Supply
In the housing sector, homebuilders are navigating an unusual environment. High mortgage rates haven’t curtailed demand as much as expected, largely due to a supply crunch in existing homes. Builders like D.R. Horton and Lennar have increased market share, filling in for the tight resale market by adjusting prices and offering mortgage rate buy-downs to keep sales steady. However, as mortgage rates start to fall, this dynamic might shift, possibly easing the advantage new homes hold over the limited existing home inventory.
Source: ABC News
While new home prices are more competitive now, high valuation multiples for homebuilder stocks suggest that any cooling of the market could challenge their recent performance.
WATCHOUT
2024 Election Impacts Healthcare Stocks and Insurers
The 2024 election holds significant implications for healthcare stocks, with the market steady but closely watching changes, especially within Medicare Advantage and Affordable Care Act (ACA) marketplaces. A Trump administration might ease pressures on insurers heavily invested in Medicare Advantage, such as Humana, CVS Health, and UnitedHealth, potentially keeping the market steady by reversing recent regulatory challenges. Conversely, a Harris administration would likely benefit ACA-centric insurers like Oscar Health, with proposed subsidies that could expand healthcare accessibility and sustain hospital revenue, keeping the market steady for companies like Tenet and HCA Healthcare in high-population states such as Texas and Florida.
Source: UBC News
Pharmaceutical companies, however, may face a less clear outcome. While Trump may favour M&A-friendly policies aiding Big Pharma, Harris would seek expanded Medicare drug price negotiations, although this would require broader Democratic support in Congress
Eli Lilly's Stock Drops Depsite Revenue Growth
Eli Lilly (LLY) declined by 6.28% due to missed expectations in obesity drug sales, despite a 20.4% year-over-year revenue increase.
Given the current price position below the short- and medium-term moving averages, alongside the high PUT volume around $750, Eli Lilly’s stock may experience further downside pressure in the short term. The area around the 20-day and 50-day moving averages (above $850) is likely to act as resistance, making it challenging for the stock to break higher without a strong catalyst. In the short term, the stock may continue to trade lower or consolidate within the $800 to $850 range, with potential support around the $800 level.
In summary, Eli Lilly (LLY) may see some short-term weakness or consolidation, with limited upside momentum unless it can break through the 20-day and 50-day moving averages.
AMD Shares Slide 10% on Soft Q4 Forecast, Eyes Strong AI GPU Gains
Advanced Micro Devices (AMD) fell over 10% due to a slightly below-forecast Q4 revenue outlook, though it expects significant data centre AI GPU revenue this year.
Given the alignment of the price with the short-term moving averages and the concentration of CALL volume around $150, the stock could see limited upside near the $150 level. The high IV on PUT options suggests that investors may still be hedging against a potential drop. Therefore, in the short term, AMD’s price might consolidate between $145 and $155, barring any major catalysts, with a possible downside bias if it fails to break above the 20-day moving average.
Investment Opportunity & Risk
Alphabet (GOOGL)
Alphabet’s earnings showcased AI advancement, setting a strong precedent for Microsoft and Meta as major earnings roll out, AI remains a key focus area, particularly in cloud, search, and advertising.. Alphabet reported AI investments exceeding $13 billion, up from $8 billion last year, underlining its commitment to long-term AI development. Alphabet rose close to 3% after robust earnings.
Microsoft’s cloud segment posted revenue in line with guidance at $24.1 billion, with Azure and other cloud services growing 33%, outperforming initial guidance. Meta’s forecast met expectations but slightly moderated its 2024 expense projection, possibly triggering a “sell the news” response.
Given the strong recent performance and high percentile rank of the stock, Alphabet (GOOGL) could face resistance near the current level of $174.46. It may consolidate between $170 and $180 in the short term, especially with options volume clustered around $180 for CALLs. The limited implied volatility on CALLs suggests that a breakout above $180 is less likely without a major catalyst, while the presence of PUT volumes around $170 indicates cautious sentiment, potentially acting as support if the stock dips.
In summary, a short-term consolidation or mild pullback could be expected, with $170 acting as support and $180 as resistance in the absence of strong catalysts.
Visa (V)
Visa gained nearly 3% following better-than-expected earnings, revenue, and a dividend increase. Mastercard (MA) also benefited from Visa’s performance.
The combination of the high percentile rank, options activity around the 300 strike, and supportive moving averages suggests that Visa’s stock may face resistance around the current price level. The stock could either consolidate near $300 or experience a mild pullback before potentially resuming its uptrend. Unless there is a major catalyst, a breakout above the $300 level seems less likely in the short term due to the absence of significant CALL IV increases at higher strikes.
CONCLUSION
- The U.S. market continues to navigate a period of heightened anticipation and uncertainty, driven by impending economic data, Federal Reserve decisions, and the upcoming election.
- While the third-quarter GDP growth of 2.8% underscores the economy’s resilience, investor sentiment remains cautious, evidenced by limited movement across major indexes.
- Mega-cap earnings have also reflected mixed outcomes, particularly within the tech sector, where companies are strategically aligning with AI advancements, setting the stage for potential long-term growth.
- In the housing market, high mortgage rates have paradoxically sustained demand for new builds due to a supply crunch in existing homes, yet high valuations among homebuilders indicate possible risks should rates ease and competition intensify.
- Meanwhile, healthcare stocks are positioned for significant shifts depending on the election’s outcome, with different policies favoring sectors like Medicare Advantage or ACA marketplaces.
- For key stocks, such as AMD, Visa, Alphabet, and Eli Lilly, recent performance reflects both opportunities and resistance levels that align with sector-specific dynamics.
- These stocks face various technical and sentiment-driven barriers, suggesting consolidation or limited upside without additional catalysts.
- Overall, markets seem poised for modest movement, balancing optimism around growth sectors like AI with caution around broader economic and political uncertainties.
Please note that all information in this newsletter is for illustration and educational purposes only. It does not constitute financial advice or a recommendation to buy or sell any investment products or services.
About the Author
Rein Chua is the co-founder and Head of Training at AlgoMerchant. He has over 15 years of experience in cross-asset trading, portfolio management, and entrepreneurship. Major media outlets like Business Times, Yahoo News, and TechInAsia have featured him. Rein has spoken at financial institutions such as SGX, IDX, and ShareInvestor, sharing insights on the future of investing influenced by Artificial Intelligence and finance. He also founded the InvestPro Channel to educate traders and investors.
Rein Chua
Quant Trader, Investor, Financial Analyst, Vlogger, & Writer.
