The Earnings and Election Season Roller Coaster Has Begun

A Head Above

We are two weeks into earnings season, and July is ending with the markets well off their highs. As visible in the chart below, there is a head and shoulders pattern on the daily chart of both the Nasdaq 100 and the S&P 100.

Not only that, but there has also been a neckline break caused by the latest earnings news from Tesla and Alphabet. Thus far, earnings season has been less than stellar, as quarter after quarter of consecutive positive earnings reports have led to extraordinarily high expectations while going into an election year. As for the uncertainty around the upcoming election, well, there’s certainly a lot to dive into here as well.

Assassination Attempts and Drop Outs

Former President Donald Trump and sitting President Joe Biden had a debate that brought up major concerns about the mental acuity of Joe Biden. Then, in the middle of July, former President Donald Trump was shot in the ear during an assassination attempt in Pennsylvania. Subsequently, former President Donald Trump started polling exceedingly well against Joe Biden, and then fellow Democrats started to call for Joe Biden to take his name off the ticket. Finally, Joe Biden stepped down as the Democratic nominee, making way for Vice President Kamala Harris to take his place on the Democratic ticket for the presidency. So, July has been quite an eventful month on the political front. What happens next is anybody’s guess. But one thing is for certain: markets don’t like uncertainty, and a lot of uncertainty has been thrown into the market from a political perspective. This month certainly has added to the selling pressure, especially since markets had been at all-time highs just prior to the start of earnings season.

I.T. Failures

July has certainly not been short on news, such as the Friday morning when the world woke up to the largest IT outage ever experienced. CrowdStrike and Microsoft realized that all their systems were down, and any of the companies that use their services experienced complete system failure for at least one-third of the day while they dealt with the problem. This also has led to profit-taking in the technology sector. We reiterate that the tech sector was the leader of this rally, and it was at all-time highs, and now we’ve had a trifecta of news that has added new topics to the wall of worry.

Let’s just summarize: 

  1. Earnings are less than expected in the tech sector.
  2. An assassination attempt on a former US president and current candidate for presidency.
  3. Joe Biden drops out of the candidacy for US president in favor of Vice President Kamala Harris.
  4. The largest IT failure in the world occurs when CrowdStrike and Microsoft experience an outage, exposing technology’s soft underbelly to scrutiny.
  5. Stock rotation starts to take hold as tech stocks were at all-time highs just prior to earnings season.

What to Expect Going Forward?

We are on the verge of August, which is traditionally one of the slowest, low-volume times of the year. However, it is also one of those times when sneak selloffs can occur. So, be prepared and expect the unexpected. Pretty much anything can happen as earnings are still in full effect. Markets can snap back to the upside and then quickly reverse back down depending on individual earnings results.

Also, be mindful that presidential election volatility is just beginning and has already had some very historic moments. It is doubtful that this will be a quiet, orderly election season. Trade well and be careful.

Written by Michael DiGioia, Director of Education
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