October 25, 2021
Good morning,
Welcome to big tech week. Earnings reports from the major technology companies come out this week; FB-Mon / MSFT, TWTR, GOOG-Tue / AAPL, AMZN-Thu. Hard to see how the supply chain logjam won’t throw a cold blanket on their earnings reports, but there’s no insight there, everyone knows that. The market is a discount mechanism, and the rally of the past two weeks suggests much of the logjam has been amply discounted already – we’ll soon find out.
While earnings will get most of this week’s attention, it is already the last week of the month. Time to consider the possible impact of asset-allocation rebalancing. It is impossible to measure precisely but easy to say it should be a headwind this week for equities. The stock market has enjoyed substantial gains this month, as bonds have struggled. The magnitude of the S&P 500 outperformance over fixed income with a week to go in the month has been the largest since February and then we saw SPX drop 2.4% on the week. Granted, there were no earnings releases in February, nor had there been a recent reversal of trend to short term positive. In sum, month end rebalancing forces should be a headwind for the market this week.
Tech has been the beast within this beastly bull market – it has its work cut out for itself this week.
Be well,
Mike