The Next Market “Melt-Up” Starts October 31st?

Stocks surged today despite a major earnings “miss” from Amazon (NASDAQ: AMZN), reported last evening. The Dow, S&P, and Nasdaq Composite all enjoyed major gains as yields ticked slightly higher while the bond rally cooled.

Futures temporarily pointed lower prior in response to Big Tech pessimism, but that quickly evaporated as a market-wide rally took hold.

Apple (NASDAQ: AAPL), which also reported earnings last night, led the market with a stunning 7% gain through noon. AAPL earnings were by no means fantastic, but they certainly looked better than AMZN’s quarterly results. AMZN shares plunged 13% at the open, recovering from a 21% loss in after-hours trading yesterday.

“Apple’s really the lone star, if you will, of the mega-cap tech stocks,” said Jay Hatfield, CEO of Infrastructure Capital Management.

“It’s just a unique market where bad is terrible, but OK is good, so, on a relative basis, it’s spectacular.”

The core personal consumption expenditures (PCE) price index – the Fed’s favorite inflation gauge – galvanized bulls with a reading that fell in line with estimates. Core PCE rose 0.5% last month, meeting expectations as personal spending climbed 0.6%, which was higher than the consensus estimate.

With stocks trading significantly below their August highs, a PCE reading that matched estimates was apparently worth celebrating.

But today’s rally had more to do with the recent Big Tech disappointments than anything else. Forward guidance has been rough this earnings season, and that was certainly the case for the market’s top tech stocks over the last few days.

Normally, such dire guidance would sink stocks lower. These days, however, poor guidance and earnings are being construed as bullish. Any data suggesting that an economic slowdown is approaching is ultimately good news, as it implies that the Fed will reduce its coming rate hikes.

SoFi head of investment strategy Liz Young anticipates additional earnings misses in the weeks ahead.

“As we move through [earnings season], next up we’ll likely see the economy hit the skids in a bit more dramatic fashion than we’ve seen thus far,” she said.

“There are already several classic recession warning signs in place, and the risks that still lie ahead are bringing the likelihood of an actual recession closer into view.”

Sure, individual stocks are getting punished for their rough quarters. Meta (NASDAQ: META), for example, was crushed yesterday. The stock collapsed below $100 per share and exited the top 20 stocks in terms of market cap.

But, overall, the general market should continue to rally a few more sessions, at least until the Fed announces its next rate hike on November 2nd. That means traders might want to target stocks that have already reported earnings. Or, stocks that don’t report earnings until the latter half of November.

Remember also that for most companies, the stock buyback window opens up on October 31st. That could take the recent rally into overdrive over the next two sessions. And, if the Fed eases off the brakes on its November hike, a full-blown market melt-up should result, even if it means investors are in for serious long-term pain when the rally inevitably ends.


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