Stocks Bounce, Tech Giants Report Solid 3Q Earnings; Market Braces For Month End

Wednesday's market drops - the worst since June of this year - were followed by a cut-and-paste type of relief rally, with dip-buyers jumping into some of the more beaten down names, and even more buying up of the tech stocks which fueled the rally after March and are being counted on to bring the US equity markets back to summer levels.

Following Thursday's close, Apple, Amazon, Facebook, and Alphabet all reported quarterly results. Each of these companies beat estimates handily.

Interestingly, Apple ended Thursday up four points, but was selling off into the close and is down another four points (roughly 4%) in pre-market trading. Amazon was higher on Thursday by 48.23 points (+1.52%), but has given all of that back Friday morning, down 51.01 (-1.59%), to 3,160.00.

Facebook plowed ahead 13.16 points (+4.92%) Thursday, but is trending lower, down 4.03 (-1.44%), at 276.80, 90 minutes prior to the opening bell. Alphabet, parent company of Google bucked the early morning trend. It was up 50.62 (+3.34%) in Thursday's cash market session and has tacked on 96.51 (6.16%) in the pre-market. Its share price of 1,663.75 is closing in on the all-time high of 1728.28, marked on September 2, coincident with all-time highs of the S&P and NASDAQ indices.

Through Wednesday’s close, the FAAMNG stocks, Facebook (FB), Amazon (AMZN), Apple (AAPL), Microsoft (MSFT), Netflix (NFLX), and Google (GOOG, parent company Alphabet), are up 7.19% this year, against a 5.44% drop for the rest of the S&P 500, a 12.63% performance spread between the FAAMNGs and the rest of the market.

Obviously, there are a good number of companies in the market's 500 largest companies that have not done so well through the coronavirus crash and into the election season. This kind of crowding into select market darlings has pushed the market caps and stock prices of this group of tech giants to stratospheric levels, leaving the rest of the market in the dust.

The market has been weighed down by victims of the coronavirus, predictably led by elements of the travel and tourism industry. Cruise line, airlines, and energy firms take up most of the top spots in the 50 worst-performing S&P stocks of 2020.

Investors seeking bargain-basement plays can find stocks on this list that are down between 48 and 81 percent on the year, many of them household names, like Carnival Cruise Lines, American Airlines, Boeing, Slumberger, Marathon Oil and financial firms Wells Fargo, Citizens and Discover. These stocks, and many in the tiers above them, down between 20 and 48 percent continue to pressure the market, forcing more money into the tech giants, increasingly seen as the only game in town.

This sets up a dangerous situation. Should the six stocks that are leading on the year stumble or investors decide that they've made enough for 2020 and consider them overvalued, the discounting in the market would set off a cascading effect to the downside. A slew of funds are closing their books for the year today, the final trading session of October, and many more will simply hold through the end of the year.

Without active gains by the leading stocks, US equity markets ar staring straight into an abyss leading up to the election and beyond. Funds with gains on the year will want to lock them in, leaving little choice for smaller market participants who may become holiday bag-holders of some of he top names.

Overnight, Asian shares were off sharply, though none of the main exchanges down more than two percent. US market futures were in a slaughterhouse, but have pared some of the declines leading into the cash open. European stocks are flat, but under pressure.

Unless stocks rally magnificently on Friday, this week will look like a bloodbath, already sporting losses in from three to five percent in the worst weekly decline since early June. Any further deterioration will exceed that, though it would take near capitulation to rival the losses from February and March. Dow stocks have been particularly hardest hit, with that index down nearly six percent.

Putting pressure on the entire market, oil prices have been hammered. WTI crude futures are hovering just above $36, breaking down from the steady-state $40 level than has been in place since June. The current level is a five-month low, the result of a continued glut of product globally and threats of a second wave of widespread shutdowns, such as has already been put into place in France and parts of Britain and some Eurozone countries.

It's worth noting that even with the recent declines, the NASDAQ and S&P are still above September's lows, though the Dow appears to be falling off a cliff.

At the Close, Thursday, October 29, 2020:
Dow: 26,659.11, +139.16 (+0.52%)
NASDAQ: 11,185.59, +180.72 (+1.64%)
S&P 500: 3,310.11, +39.08 (+1.19%)
NYSE: 12,502.29, +86.87 (+0.70%)