Stocks opened higher this morning following some major Big Tech earnings beats. Google-parent Alphabet (NASDAQ: GOOG) soared in afterhours trading yesterday in response to far better than expected Q4 profits. What’s more, GOOG also announced a 20-for-1 stock split, which means the stock now qualifies for a Dow listing.
Chipmaker Advanced Micro Devices (NASDAQ: AMD) reported strong Q4 earnings, too, and saw its shares rise more than 9% at the open. Other Big Tech names also jumped higher, including Facebook-parent Meta Platforms (NASDAQ: FB). FB is scheduled to report earnings after the market closes today.
“Technology companies were some of the hardest hit in January, as investors feared higher interest rates would expose their lofty valuations and raise their operating costs,” said Sanctuary Wealth chief investment officer Jeff Kilburg.
“After a dramatic pullback in the tech sector, investors bargain hunted some tech names that had been battered all January.”
But for some tech stocks, the punishment continued. PayPal (NASDAQ: PYPL) shares plunged roughly 25% this morning after the company issued disappointing post-earnings guidance. eBay (NASDAQ: EBAY) dropped over 3.5% as well.
Despite the market’s recent three-day win streak, some analysts are predicting more volatility.
“We had a pretty rough January. I think we’re seeing a little bit of short covering and some bouncing here off the bottom. I don’t think the market’s settled yet,” said Michael Vogelzang, CAPTRUST’s chief investment officer.
“We don’t quite know yet what the Fed’s going to be doing. We don’t have a good sense of the path of inflation for the rest of the year. We have Russia hovering over the Ukrainian border […] that has the potential to send oil prices up even higher than they already are, which of course could slow the economy down and drive inflation higher. So, I think the market’s really unsettled, trying to find a bottom.”
And though Vogelzang’s commentary summarized the current investing climate nicely, he made no mention of a full-on bullish reversal. Stocks have already rebounded modestly since rocketing lower through January. A slight retracement over the next few days – something Vogelzang more or less predicted – wouldn’t nullify a continued bounce higher.
Additional short covering, potential stock buybacks, and bullish exuberance could be just around the corner. Let’s not forget that roughly 1% of stocks are “holding up” approximately 40% of the S&P. These are the same companies (AAPL, GOOG, MSFT) that just reported fantastic quarterly earnings. Another (FB) is set to report this evening. Tomorrow, Amazon (NASDAQ: AMZN) reports as well.
It’s highly likely that Big Tech will continue to post big numbers, lifting sentiment in the process. Yes, the majority of stocks are technically in bear market territory now. Investors who targeted small caps over the last few months have experienced deep losses. And the pandemic has only helped – not hindered – US “megacorps,” which enjoyed massive gains over the last two years at the expense of smaller companies.
But that also means the top stocks are still flourishing, and to bulls, that’s certainly worth celebrating.
Even if it causes market breadth to become more dangerously narrow (and as a result, more susceptible to rapid downturns) in the process.
