Market on Edge: Key tech earnings and economic data to drive volatility

The financial landscape is poised for heightened volatility as investors brace for crucial earnings reports from tech giants and significant economic data. Last week’s fluctuations across major indices set the stage for a potentially tumultuous period ahead, driven by both corporate performance and macroeconomic indicators. The combination of political developments, market corrections, and sector rotations creates a complex environment that requires investors to stay vigilant and adaptable.

Recent Market Movements

The financial markets experienced substantial fluctuations last week as major indices responded to a mix of earnings reports, economic data, and political developments. The S&P 500 Index declined by 0.83%, closing the week at 5,459.10. The index saw a high of 5,585.34 and a low of 5,390.95, indicating a volatile trading range. Similarly, the Nasdaq 100 Index dropped by 2.56%, ending the week at 19,023.66. The index experienced significant fluctuations, reaching a high of 19,904.60 and a low of 18,721.71.

In contrast, the US Small Cap 2000 Index gained 3.47% over the week, closing at 2,260.0689. The small-cap index performed robustly, highlighting investor interest in smaller companies. This divergence between large-cap and small-cap performance underscores the market’s uncertain sentiment and the search for stability amid fluctuating conditions. The market’s behaviour last week set a precedent for potential continued volatility, influenced by upcoming economic and corporate events.

Volatility Movements

Volatility was on the rise for most of the week before declining on Friday, reflecting the market’s fluctuating sentiments. The VIX, known as the volatility index, opened the week at 16.79, reached a high of 19.36, and closed at 16.39, down by 0.13 points or -0.79% for the week. This trend indicates increasing market fear and uncertainty during the week, which eased slightly by Friday. The mid-week spike in volatility suggests that investors were reacting to a combination of earnings reports and economic data releases, which contributed to heightened market anxiety.

The clear rise in volatility from Monday through Thursday, followed by a notable drop on Friday, suggests a temporary reprieve in market anxiety. However, the underlying uncertainties remain, driven by both external economic factors and internal corporate performance metrics. This pattern of volatility underscores the importance of staying informed about market conditions and being prepared for potential market swings.

Key Earnings Results

The week saw mixed results from some major tech companies, adding to market volatility. Tesla reported earnings that, despite high sales volumes, showed squeezed profit margins, raising concerns about future profitability. Tesla reported earnings per share (EPS) of $0.52, missing the expected $0.61. Revenue was $25.5 billion, slightly above the expected $24.33 billion. Following the earnings report, Tesla’s stock price dropped significantly, closing at $215.99, down 12.33% for the day. The market’s reaction to Tesla’s earnings highlights the sensitivity of tech stocks to profitability concerns despite robust sales figures.

Alphabet met analyst expectations but faced concerns over future advertising revenue. The company reported EPS of $1.89, meeting the expected $1.83, with revenue of $84.74 billion, slightly above the expected $84.16 billion. Despite meeting expectations, concerns about future advertising revenue led to a selloff in tech stocks. Alphabet’s stock price fell by 5.04%, closing at $172.63 following the earnings announcement. The mixed reactions to these earnings reports reflect broader market uncertainties about the sustainability of tech sector growth amid changing economic conditions.

Upcoming Week: High Volatility Expected

This week is expected to bring significant volatility, driven by a series of crucial economic reports and the Federal Reserve’s upcoming meeting. Key economic events include the CB Consumer Confidence and JOLTs Job Openings on Tuesday, ADP Nonfarm Employment Change and the FOMC statement on Wednesday, Initial Jobless Claims and ISM Manufacturing PMI on Thursday, and Nonfarm Payrolls and the Unemployment Rate on Friday. These reports will provide insights into consumer sentiment, employment trends, and overall economic health, which are critical for market participants.

The FOMC statement and the employment-related data are particularly important, as they will provide insights into the Federal Reserve’s monetary policy direction and the health of the labour market, respectively. Investors will be closely watching for any indications of changes in interest rates or economic outlooks that could impact market conditions. The combination of these economic reports with corporate earnings will likely drive significant market movements, making it a pivotal week for investors.

The writer is Options Strategist, Saxo Bank