Can Big Tech Earnings Launch Another Rally?

Amazon Founder, Chief Executive Officer, and President Jeff Bezos

Q3 corporate earnings look good and stocks are rising.

That’s the tale of this morning’s trading session, in which bulls are attempting to rebound from yesterday’s big losses. The Dow, S&P, and Nasdaq Composite are all up as a result.

And, as usual, Big Tech is leading the way.

Apple (NASDAQ: AAPL), Google-parent Alphabet (NASDAQ: GOOG), and Facebook (NASDAQ: FB) surged at the open, rising 2.7%, 2.6%, and 4.3%, respectively, by noon. All three companies, plus Amazon (NASDAQ: AMZN), will report earnings after the close.

How strong those earnings are could have a major impact on the market’s short-term trend. So too will forward guidance with the U.S. facing even more Covid-19 uncertainty over the last week.

Thus far, though, the non-FAANG stocks that already reported have mostly surpassed analyst estimates. Of the more than 270 S&P 500 companies that revealed earnings, 85% beat expectations.

But that hasn’t stopped share prices from tumbling in the face of rising Covid-19 infections. And, according to Nuveen strategist Bob Doll, stocks could be slumping in response to a wave of bullish fatigue.

“Another thing that bothers me is a lot of companies are coming out with much less-worse earnings than expected, the stocks initially go up and then they fade,” Doll said.

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“Too many stocks falling on good earnings results. The market’s just tired and needs a rest.”

Also lifting sentiment today is a better-than-expected quarterly GDP gain for the U.S. economy. The official number clocked in at 33.1% annualized, exceeding the Dow Jones estimate of 32%.

“Overall, the initial recovery in GDP after the first wave of lockdowns were lifted was stronger than we originally anticipated,” explained Paul Ashworth, chief U.S. economist at Capital Economics.

“But, with coronavirus infections hitting a record high in recent days and any additional fiscal stimulus unlikely to arrive until, at the earliest, the start of next year, further progress will be much slower.”

James McCann, senior global economist at Aberdeen Standard Investments, felt similarly about the quarterly GDP surge. He did, however, also warn investors to treat the news with caution.

“This is going to be seized upon by both ends of the political spectrum as either evidence of the strength of the post-lockdown economic rebound or a cursory warning that the gains could be short-lived,” McCann said.

“The reality is that the GDP numbers demonstrate that the U.S. economy did indeed rebound strongly as lockdown measures were lifted.”

Even the lagging U.S. jobs market enjoyed a boost as well. The number of first-time unemployment filers fell for a second straight week. Meanwhile, the total number of new claims for the week ending October 24th came in at only 751,000, or below the Dow Jones estimate of 778,000.

The market needed some good news following its rapid three-session plunge. Today, it got that in spades.

And if the major indexes can string together a few more winning days – possibly on the back of impressive Big Tech earnings – a rebound rally may arrive sooner rather than later.

The big Election Day “wild card” still looms in the near distance, though, and if things get messy, not even a strong FAANG showing this afternoon would be able to prevent the panic selling that follows.

Even if it’s clear that America’s top corporations are truly mounting a Q3/Q4 comeback.

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