Why Stocks Will Rally Without Big Tech’s Help

Stocks rallied again today despite underwhelming Big Tech earnings. The Dow and S&P both gained while the tech-heavy Nasdaq Composite traded flat.

Microsoft (NASDAQ: MSFT) and Google-parent Alphabet (NASDAQ: GOOG) revealed disappointing earnings last night, causing both stocks to plummet in after-hours trading. MSFT traded roughly 5.3% lower through noon alongside GOOG, which fell 6.3%.

But instead of crushing the rest of the market, virtually every other sector rallied outside of tech. And even within tech, Oracle (NASDAQ: ORCL) snagged an eye-popping 3.00% morning gain after already trading significantly higher over the last few weeks.

“Investors probably were caught a little by surprise by the negative guidance offered by Microsoft,” said CFRA strategist Sam Stovall.

UPS (NYSE: UPS) and Coca-Cola (NYSE: KO) reported far better quarterly results by comparison.

“I think investors are feeling a little bit better about the more large-cap, blue-chip stocks,” Stovall added.

Today’s rally continuation was anchored by two major trends:

(1) A plunging dollar and (2), falling Treasury yields.

The US Dollar Index (NYSE: DXY) mercifully broke through support from early October, signaling that a deeper descent may soon arrive. This followed a breakout below the 10-day moving average last week.

And though breakouts below the 10-day moving average have not necessarily been sell signals in recent months, they’ve been relatively accurate sell triggers when coupled with the setting of a lower high – something DXY just did.

Treasurys were up big again today as well, dropping yields in the process. The dollar and yields combined to flush out any Big Tech-driven negativity.

“The interest rates have really started to bite in terms of knocking down the inflation story,” said Harris Financial Group managing partner Jamie Cox.

“That’s really important for markets.”

Meta Platforms (NASDAQ: META) reports earnings after the close this afternoon. Many analysts expect CEO Mark Zuckerberg to reveal weak user growth and daily active users, especially in regard to the platform’s troubled “Metaverse.”

Meta shareholder Brad Gerstner of Altimeter Capital wrote a scathing letter to the company earlier this week.

“Meta needs to re-build confidence with investors, employees and the tech community in order to attract, inspire, and retain the best people in the world. In short, Meta needs to get fit and focused,” Gerstner wrote.

“In addition, people are confused by what the metaverse even means. If the company were investing $1-2B per year into this project, then that confusion might not even be a problem.”

Meta’s virtual reality projects (of which metaverse is one) have cost the company upwards of $100 billion according to recent estimates. Gerstner said an investment of that size “in an unknown future is super-sized and terrifying.”

Many other shareholders likely feel the same. Several weeks ago, it was reported that the metaverse only had 30 active users. And no, that’s not a typo.

The doom and gloom surrounding Meta could mean, however, that the stock might surprise significantly to the upside.

But even if Meta doesn’t beat estimates, it may not matter for the general market. MSFT and GOOG got throttled today, and yet stocks still gained.

So long as Treasury yields continue to tick lower alongside the dollar, stocks will go up. And, if the US Treasury starts to buy back longer-term Treasurys like many analysts think it will, yields could crater, sparking an even stronger rally in the process.

LEAVE A REPLY

Please enter your comment!
Please enter your name here