Market absorbs big-tech stumble

  • Stocks gain despite tech setback, small caps strong
  • GDP tops expectations, yields drop, inflation steady
  • This week: Fed, jobs report, semiconductor earnings

True, the bar hasn’t been very high lately, but after another solid up week the US market has a shot at its second-best month in nearly two years and its best October since 2015—no small feat, considering stocks hit new bear-market lows a little more than two weeks ago.

Last week’s gains came without any help from tech, though, which floundered after some of its biggest names released earnings. But after closing lower on Wednesday and Thursday, the S&P 500 (SPX) closed out the week with a strong rally:

Chart 1: S&P 500 (SPX), 9/2/22–10/28/22. S&P 500 (SPX) price chart. Strong start, strong finish.

Source: Power E*TRADE. (For illustrative purposes. Not a recommendation.)

The headline: Big tech stumbles, market recovers.

The fine print: Of the “megatech” names that reported earnings last week—Alphabet (GOOGL), Amazon (AMZN), Apple (AAPL), Meta (META), and Microsoft (MSFT)—AAPL was the only one that didn’t sell-off after reporting its numbers. But away from tech, earnings (while still mixed) were more robust, and included solid results—and stock rallies—from automakers GM (GM) and Ford (F).

The move: The yield on the benchmark 10-year US T-note started last week above 4.2% and closed Thursday at 3.94%--its biggest retreat since early August—before closing Friday at 4.01%.

The numbers: 2.6%, the initial estimate of Q3 GDP—better than expected, and a jump into positive territory after two quarters of contraction. Also, the PCE Price Index—the Fed’s preferred inflation gauge—showed price pressures were stable to lower in September: The core PCE (excluding energy and food) matched estimates by rising 0.5%, while August’s number was revised lower.

The scorecard: The Nasdaq 100 (NDX) tech index trailed the pack, but its market-leading rally on Friday flipped it from a weekly loss to a solid gain:

US stock index performance table for week ending 10/28/22. S&P 500 (SPX), Nasdaq 100 (NDX), Russell 2000 (RUT), Dow Jones Industrial Average (DJIA).

Source (data): Power E*TRADE. (For illustrative purposes. Not a recommendation.)

Sector performance: The strongest S&P 500 sectors last week were industrials (+6.7%), utilities (+6.6%), and real estate (+6.3%). The weakest sectors were communication services (-2.8%), consumer discretionary (0.8%), and energy (2.5%).

Stock movers: Vaxcyte (PCVX) +60% to $33 on Monday, Medpace (MEDP) +38% to $218.46 on Tuesday. On the downside, Stride (LRN) -29% to $32.86 and Y-Mabs Therapeutics (YMAB) -27% to $11.01, both on Wednesday.

Futures: Thanks mostly to a big rally last Wednesday, December WTI crude oil (CLZ2) ended the week modestly higher at $88.20/barrel. December gold (GCZ2) consolidated most of last week before dropping Friday to close at $1,647.50/ounce. Week’s biggest up moves: October micro ether (METV2) +17.9%, October micro bitcoin (BTCV2) +6.6%. Week’s biggest down moves: January lumber (LBSF3) -14%, November VIX (VXX2) -12.8%.

Coming this week

Before traders get a look at the monthly jobs numbers on Friday, the Fed will announce its latest interest rate decision on Wednesday:

Monday: Chicago PMI
Tuesday: S&P Global Manufacturing PMI, ISM Manufacturing Index, Job Openings and Labor Turnover Survey (JOLTS), Construction Spending
Wednesday: ADP Employment Change, Fed Interest Rate Announcement
Thursday: Challenger Job Cut Report, Trade deficit, Productivity and Labor Costs, S&P Global Services PMI, ISM Services Index, Factory Orders
Friday: Employment Report

Chip stocks feature prominently on a packed earnings calendar. Here’s a sample:

Monday: Global Payments (GPN), ON Semiconductor (ON), Arista Networks (ANET), Lattice Semiconductor (LSCC), NXP Semiconductors (NXPI), PriceSmart (PSMT), Rambus (RMBS), SBA Communications (SBAC)
Tuesday: BP (BP), LGI Homes (LGIH), Eli Lilly (LLY), Pfizer (PFE), Phillips 66 (PSX), Uber (UBER), Airbnb (ABNB), Advanced Micro Devices (AMD), Clorox (CLX), Livent (LTHM)
Wednesday: CVS Health (CVS), Martin Marietta (MLM), Rockwell Automation (ROK), Yum Brands  (YUM), Allstate (ALL), eBay (EBAY), Etsy (ETSY), Piedmont Lithium (PLL), Qualcomm (QCOM), Qorvo (QRVO), Royal Gold (RGLD), Workiva (WK)
Thursday: ConocoPhillips (COP), Datadog (DDOG), Moderna (MRNA), Penn Entertainment (PENN), Peloton (PTON), Papa Johns (PZZA), Regeneron (REGN), Wayfair (W), Bill.Com (BILL), Coinbase (COIN), Cloudflare (NET), PayPal (PYPL)
Friday: Dominion Energy (D), DraftKings (DKNG), Hershey (HSY)

Check the Active Trader Commentary each morning for an updated list of earnings announcements, IPOs, economic reports, and other market events.

One step at a time

If one of the most basic definitions of an uptrend is a series of higher highs and higher lows, bulls may be hoping the S&P 500 (SPX) made a small statement with last week’s rally.

A little more than a week after it hit a new bear-market low on October 13—completing a 50% retracement of the March 2020–January 2022 rally and, as Morgan Stanley & Co. analysts noted, tagging the 200-week moving average (MA)1—the SPX made its first higher low (HL) of the rebound. A few days later, it made a higher high (HH) by pushing above its early-October highs:

Chart 3: S&P 500 (SPX), 7/11/22–10/25/22. S&P 500 (SPX) price chart. Higher low (HL) and higher high (HH).

Source: Power E*TRADE. (For illustrative purposes. Not a recommendation.)

Of course, the market will need to continue the pattern to put together a real uptrend. Since 1960, though, when the SPX rallied the week after closing below its 200-week moving average, it closed higher the following week 16 of 21 times.2


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1 What is Causing the Market Rally? 10/24/22.
All data reflects S&P 500 (SPX) weekly prices, 1960–2022. Supporting document available upon request.

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