Big tech stocks will be key for the current rally: Morning Brief

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Thursday, Oct. 27, 2022

Today’s newsletter is by Jared Blikre, a reporter focused on the markets on Yahoo Finance. Follow him on Twitter @SPYJared. Read this and more market news on the go with Yahoo Finance App.

The major indices are rallying for the seventh time this year, potentially crawling out of a bear market that’s lasted for nearly six months. The Dow (^DJI), Nasdaq Composite (^IXIC), S&P 500 (^GSPC), and even the Russell 2000 (^RUT) are each up 9% to 11% from the mid-October lows as bulls flash the first signs of greed since August.

Mega cap earnings this week will determine whether the rally continues. The top 20 components of the S&P 500 by market capitalization account for 4% of the index by count but nearly 40% of the index by weight. This outsized representation gives each mega cap a disproportionate effect on the market.

So far, it’s looking like the mega caps could hinder the rally. This week, poor showings from Alphabet (GOOG, GOOGL), Microsoft (MSFT), and Meta Platforms (META) have weighed on the major indices. The Google parent closed down 9.1% on Wednesday, marking its worst day since the pandemic lows of 2020. Apple (AAPL) reports after the closing bell today.

Eight of the top 20 companies in the S&P 500 have lost more than $100 billion in market cap as of Wednesday — with Microsoft down $780 billion, Alphabet $650 billion, and Meta Platforms $555 billion. Nvidia, Apple, and Amazon have each lost more than $400 billion since the start of 2022.

Apple is expected to report quarterly revenue of $88.6 billion, with $15.7 billion coming from greater China. With all the hype around the iPhone 14, it’s easy to forget that multinationals like Apple are also suffering because of the strength of the U.S. dollar (DX-Y.NYB).

Meta initially dropped as much as 14% after the bell Wednesday after lowering its sales forecast for the current quarter — in part because of foreign exchange-related headwinds.

Overall, the tech, communication services, and consumer discretionary sectors are each down about 30%. At the same time, the energy and health care sectors are on the upswing.

Exxon Mobil (XOM) added over $190 billion to its market cap, while Chevron (CVX) tacked on nearly $120 billion. Pharmaceutical company Eli Lilly & Co. (LLY) and insurer UnitedHealth (UNH) added about $80 billion and $40 billion, respectively, this year. For the broad rally to continue, they’ll likely need some help from the mega cap tech stocks.

What to Watch Today

Economy

8:30 a.m. ET: GDP Annualized, quarter-over-quarter, 3Q A (2.4% expected, -0.6% prior)
8:30 a.m. ET: Durable goods orders, September Preliminary (0.6% expected, -0.2% during prior month)
8:30 a.m. ET: Personal Consumption, quarter-over-quarter, 3Q A (1% expected, 2.0% prior)
8:30 a.m. ET: Durables excluding transportation, September Preliminary (0.2% expected, 0.3% during prior month)
8:30 a.m. ET: GDP Price Index, quarter-over-quarter, 3Q A (5.3% expected, 9.0% prior)
8:30 a.m. ET: Non-defense capital goods orders excluding aircraft, Septmeber Preliminary (0.2% expected, 0.3% during prior month)
8:30 a.m. ET: Core PCE, quarter-over-quarter, 3Q A (4.6% expected, 4.7% prior)
8:30 a.m. ET: Initial Jobless Claims, week ended Oct. 22 (225,000 expected, 214,000 during prior week)
8:30 a.m. ET: Continuing Claims, week ended Oct. 15 (1.385 million during prior week)
11:00 a.m. ET: Kansas City Manufacturing Index, October (-2 expected, 1 during prior week)

Earnings

Amazon.com (AMZN), Apple (AAPL), Altria (MO), Ares Management (ARES), AutoNation (AN), Caterpillar (CAT), Capital One (COF)Comcast (CMCSA), CubeSmart (CUBE), Gilead Sciences (GILD), Hertz Global (HTZ), Honeywell (HON), Intel (INTC), Keurig Dr Pepper (KDP), Mastercard (MA), McDonald’s (MCD), Merck (MRK), Northrop Grumman (NOC), Oshkosh (OSK), Overstock.com (OSTK), Pinterest (PINS), Royal Caribbean (RCL), S&P Global (SPGI), Shopify (SHOP), Southwest Air (LUV), T. Rowe Price (TROW), Twitter (TWTR), T-Mobile (TMUS), Willis Towers Watson (WTW)