Market Overview

Stock Market On Edge As Tech Lights Up Earnings Marquee

Stock Market On Edge As Tech Lights Up Earnings Marquee

Stock investor sentiment was rattled Friday as worrisome headlines from overseas diverted attention from disappointing earnings from General Electric Company (NYSE: GE), Honeywell International Inc. (NYSE: HON), and American Express Company (NYSE: AXP) and economic data that did little to change Wall Street’s collective mind about go-slow interest-rate timing. Trading this week could prove a valuable test of bull market resiliency after late-week volatility.

The biggest influence: eurozone stock averages dropped after Greece’s banks were asked to divest Greek government debt holdings to limit the contagion risk from any potential defaults. Separately, Chinese regulatory authorities opened the door for fund managers to lend shares for short selling, and will also expand the number of stocks investors can sell short.

Industry analysts said it’s a move that could be aimed at cooling red-hot markets, including a 17 percent year-to-date gain in Hong Kong’s Hang Seng. Fresh headlines from China on Sunday revealed a cut to banking reserve requirements with the intent of stimulating the growth engine’s economy.

There were more drivers at work. Supportive for S&P 500 (SPX) energy stocks, crude oil futures rallied sharply through $54 a barrel on Friday and are now threatening resistance at $58.

All told, it was enough to drive the SPX down 23.81 points (1.1 percent) on Friday to suffer its biggest single-day loss in more than a month. Now, as the floodgates open on Q1 earnings, investors are wondering whether these quarterly reports can help shift focus away from macro events. Or will disappointing results potentially add to the escalating levels of investor angst?

Multiple Volatility Measures Rise

Many measures of market volatility perked up from a lull late last week. The CBOE Volatility Index (VIX), for instance, hit an intraday high of 15.02 and finished up 1.28 to 13.89 Friday. The index, which tracks the implied volatility priced into short-term SPX options, dropped toward the lower end of its 2015 range on Thursday before the 10.4 percent climb on Friday (figure 1).


Figure 1: Big Jump for VIX. The CBOE Volatility Index (VIX), which tracks the implied volatility priced into short-term options on the S&P 500, gapped higher on Friday’s open and closed at its highest level in more than a week after global stock market volatility spilled into U.S. trading. Data source: CBOE. Chart source: TD Ameritrade’s thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.

VIX wasn’t alone. Implied volatility across other stock measures rose by 10 percent to 11 percent Friday. But the trend so far in April had been in the other direction. VIX is down 9 percent month to date. What’s more, the decline in volatility has folded in several stock measures as well as commodities measures (see table below). Maybe Friday was simply a bit of a wake-up call, as many barometers of volatility and investor sentiment had dropped to the lower end of the 2015 range and may have been overdue for a bounce.


Tech Week In Earnings

The global focus may tighten this week, considering the quickened pace of earnings releases. The new batch will likely draw tighter scrutiny after a mixed bag from the first round, with Intel Corporation (NASDAQ: INTC), Netflix, Inc. (NASDAQ: NFLX), and GE topping estimates but noteworthy misses from Bank of America Corp (NYSE: BAC), SanDisk Corporation (NASDAQ: SNDK), and Advanced Micro Devices, Inc. (NASDAQ: AMD). This week’s marquee earnings names include Dow components The Coca-Cola Co (NYSE: KO), McDonald's Corporation (NYSE: MCD), Boeing Co (NYSE: BA), Verizon Communications Inc. (NYSE: VZ), and AT&T Inc. (NYSE: T) midweek. Hundreds of S&P 500 constituents will be releasing results, too.

And, we can safely call this “tech week” on the earnings front. Count em: Yahoo! Inc. (NASDAQ: YHOO), Facebook Inc (NASDAQ: FB), eBay Inc (NASDAQ: EBAY), QUALCOMM, Inc. (NASDAQ: QCOM), Google Inc (NASDAQ: GOOG) (NASDAQ: GOOGL), and Microsoft Corporation (NASDAQ: MSFT) are among the firms due with earnings. This is an important sector and has been a bright spot the last few years.

The important thing to listen for here is CEO sentiment on strong-dollar impact on earnings as well as domestic and worldwide economic forecasts. As for the economic calendar, existing-home sales figures due Wednesday and new-home sales scheduled for Thursday could face a tougher Street test after housing construction starts issued last week missed the mark.

Otherwise, durable goods data on the docket for Friday caps a light week for economic news (see figure 2 for the full lineup). Economic news will pick up significantly in the last week of April, featuring a granddaddy of events: the next Federal Reserve meeting on April 29.

This article was written by JJ Kinahan and was originally published here.

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