Laser Focus On Risk Management Required In This Wild Market
Ashraf Laidi | Jul 14, 2020 09:52AM ET
Adam Button
Technology stocks are increasingly the tail that wags the dog in broader markets and that led to a wild ride on Monday.
The euro started the week as the top performer while sterling lagged. JPMorgan Chase (NYSE:JPM) beat earnings thanks to stellar trading operations, which helped overcome the biggest loan-loss provision in its history. Today, EUR is the strongest, GBP the weakest.
The insanity in Tesla's (NASDAQ:TSLA) stock price on Monday is indicative of the mood in technology stocks at the moment. The $250 rise in its stock price to start the day was its entire market cap a year ago but that was followed by a $300 drop from the highs. The reversal took many of the high-flying tech stocks with it and the NASDAQ finished the day down 2.1%.
This could simply be another bump in the road in a rally that's spanned months but it will bear very close watching in the day ahead. It's a reminder that this is an emotion-driven market and greed can flip to fear in a heartbeat. That argues for laser focus on risk management.
h2 Watch QQQ SOX XLK/h2Pay attention to the massive bearish engulfing daily candle on Invesco (NYSE:IVZ) QQQ, Philly Semi-Conductors Index (SOX) and the S&P's tech sector ETF (NYSE:XLK). SOX eyes next crucial support at 1998/99, QQQ is vulnerable to break below 256 towards 251. This move could be reinforced if US bank earnings outperform and accelerate the rotation from tech to DOW30 and BKX.
Earnings season picks up this week and that will add an extra layer of intrigue.
Looking ahead, the US June inflation report is due at 1230 GMT. The consensus is for just a 0.6% y/y rise in prices but even a significant miss wouldn't rattle the market because the Fed will no-doubt remain accommodative for many months. The detail to focus on will be hourly and weekly earnings, which are forecast to rise 7.4% and 6.5% y/y, respectively. Those numbers highlight the boost from enhanced unemployment benefits and are a reminder of what's at stake if the Fed doesn't extend them.
In terms of the Fed, a speech from Brainard at 1800 GMT will be notable. She was the lone dissenter at the top ranks of the FOMC in the banks' capital plan – preferring to bar large banks from paying dividends --and she could expand on that. Alternatively, she could focus on the economy and lay out her views on what's coming next. She's not afraid to go against the grain and her thoughts are worth heeding.
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