'Big tech Thursday' could be the catalyst for new highs
Thursday's blast of high-profile earnings, including big tech bellwethers, could help set the stage for new stock market highs in the very near future.
There's a rush of earnings Thursday morning, including Union Pacific (NYSE: UNP), Bristol-Myers Squibb, Ford, American Airlines (NASDAQ: AAL), Comcast, (NASDAQ: CMCSA) Dow Chemical, Raytheon (NYSE: RTN) and Deutsche Bank, to name a few.
But some of the tech names that have led the market's gains report after the closing bell and could be big catalysts into Friday's trading. That includes Amazon.com (NASDAQ: AMZN), up 21 percent year to date, and Alphabet (NASDAQ: GOOGL), which has risen 12 percent. Microsoft, (NASDAQ: MSFT) Intel (NASDAQ: INTC) and Starbucks (NASDAQ: SBUX) also report after the close.
There are risks to that scenario, including the fact that Congress still needs to pass a resolution to keep the government funded by Friday, though it is expected to happen. There are also wild cards, like the worrisome tensions with North Korea.
Another factor that markets are warily watching is the string of softening data reports. Thursday data includes March durable goods orders, weekly jobless claims and advanced economic indicators, all at 8:30 a.m. ET. Economists have been cutting forecasts for first-quarter GDP, expected Friday, but are hopeful the second quarter will bounce back. JPMorgan lowered its forecast to 0.4 percent for the first quarter on Wednesday.
Stocks slid into the close Wednesday, in a sell-the-news move after President Donald Trump's much anticipated tax plan. The proposal contained a juicy corporate tax cut but was viewed as short on details and likely to be seriously modified. Nonetheless, it is an opening round in what is expected to be months of horse trading on taxes.
"People are somewhat optimistic, but they wanted more detail," said Doron Barness, head of global equities trading at Oppenheimer. He said what the market is really focusing on are the nearby highs, like 2,400 on the S&P 500. (INDEX: .SPX) That index closed Wednesday at 2,387, down 1 point. The Nasdaq was just under its high, set Tuesday, closing at 6,025, and the Dow (Dow Jones Global Indexes: .DJI) was off 21 at 20,975. The Russell 2000 (Exchange: .RUT) closed at a new all-time high of 1,419.
"We've had some soft economic data, but people are ignoring that. You have North Korea stuff going on. People are ignoring that. Those are the kind of things that could bring the market down if more economic data comes out that's weaker and there's something geopolitical. But absent that, I don't see how the market doesn't go higher. People are not going to sell this market," said Barness.
Earnings power
As of Thursday, half the S&P 500 will have reported earnings, and so far profits are expected to be up about 11.8 percent from last year's first quarter, according to Thomson Reuters. The companies that have reported so far, saw profits rise an average of 14.4 percent and beat expectations 77 percent of the time.
"Obviously, it's all been about earnings, and obviously large-cap earnings have been coming in quite strong, and that's giving people a lot of optimism. You have the VIX (STOXX: .VIX) back under 11 so it's risk-on," said Steve DeSanctis, Jefferies equity strategist. The VIX is the CBOE's Volatility Index, a measure of market fear since it is calculated based on the puts and calls on the S&P 500. It was at the low level of 10.85 on Wednesday, up 0.8 percent.
Barness said if the S&P does get close to 2,400, it could hover there for a while. "What usually happens is we'll toy with this level, back and forth," he said. "If we go through, it's going to have velocity." He said that would force short covering, meaning traders who have short positions would have to buy as the prices go up.
"There's a lot of euphoria going around. I hate to be the skunk at the garden party, but I'm just a bit more skeptical here. We've had a pretty big move in three days," said DeSanctis.
Econorama
Bond yields, which move inversely to price, also slid Wednesday amid concerns that the tax plan could widen the federal budget deficit, which would ultimately make yields rise. In late trading, the 10-year yield (U.S.: US10Y) drifted to 2.30 percent, an important technical area that the market had held above for months — until last week.
"Who is going to be right? The bond market is telling you there's sluggish growth ahead, and the stock market is not telling you that," said DeSanctis.
UBS economists on Wednesday said they were sticking with their view that first-quarter growth is tracking at 0.9 percent, after government retail sales revisions showed a weaker-than-expected consumer in the first quarter.
But they did note that Thursday's data on retail and wholesale inventories and the advanced merchandise trade, as well as durables could influence their forecast for GDP ahead of Friday's report.
Disclosure: Comcast is the owner of NBCUniversal, the parent company of CNBC and CNBC.com.
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