Eyes on Amazon

Much has been made of the weakness in the mega-cap stocks this week and rightly so. That is why all eyes are on Amazon.com (AMZN) today and how it trades throughout the session.

Amazon.com reported its quarterly results after yesterday’s close, and they were undeniably good from a profit standpoint. Shares of AMZN are up 5.6%, which makes sense. It is earnings season after all.

That move has helped foster some buy-the-dip action in other mega-cap stocks, which is giving a needed boost to the Nasdaq 100 futures along with Intel’s (INTC) better-than-expected report and outlook. Shares of INTC are up 7.2%.

In turn, these stocks are lending support to the S&P 500 futures, which have taken stock of the positive price action in the likes of Chipotle Mexican Grill (CMG), Exxon Mobil (XOM), Stanley Black & Decker (SWK), L3 Harris (LHX), and Capital One (COF) following their earnings results that has overshadowed the weakness in Chevron (CVX) following its earnings results.

Still, it feels as if there is a holdback provision in the futures trade. That also makes sense given the disarming price action seen throughout the week, the ingrained geopolitical angst in front of the weekend, and the continued interest rate volatility.

Currently, the S&P 500 futures are up 18 points and are trading 0.4% above fair value, the Nasdaq 100 futures are up 128 points and are trading 0.9% above fair value, and the Dow Jones Industrial Average futures are up four points and are trading in-line with fair value.

The holdback in our estimation relates to doubts about whether the positive disposition will be maintained into the close. That is why the manner in which Amazon.com trades is so important to today’s action. If it rolls over intraday, it likely won’t be alone and the prominent mega-cap drag on the broader market seen this week will return.

The September Personal Income and Spending Report didn’t cause any real drag on the market at first blush, but we would argue that it was a bit of drag when it comes to the inflation trend.

Briefly, personal income increased 0.3% month-over-month (Briefing.com consensus 0.4%) following a 0.4% increase in August. Personal spending jumped 0.7% (Briefing.com consensus 0.5%), perhaps not so surprising in light of what was seen in yesterday’s advance Q3 GDP report.

The PCE Price Index was up 0.4% month-over-month (Briefing.com consensus 0.3%) and up 3.4% year-over-year, unchanged from August. The core-PCE Price Index, which excludes food and energy and is the Fed’s preferred inflation gauge, rose 0.3% month-over-month, as expected, and was up 3.7% year-over-year versus 3.8% in August.

The key takeaway from the report is that the PCE Price Index and the core PCE Price Index had a sticky feel to them, meaning they lacked a stronger trend of disinflation. That is apt to keep the Fed in a more hawkish mindset, which doesn’t mean the Fed will be moved to raise rates soon. What it does mean is that the Fed won’t be thinking about a rate cut anytime soon.

The initial reaction in the Treasury market to this report was relatively neutral. The 10-yr note yield, at 4.86% in front of the news, is at 4.87% now. That calm reaction has been appreciated by the equity futures market, but it hasn’t necessarily driven the equity futures market to any great extent.

Ideally, the stock market will shift into a higher gear as the cash session progresses and find a smoother path after traversing a pothole-laden road this week. A lot is riding on Amazon’s turn at the wheel and the 10-yr note yield’s behavior as a backseat driver. 

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Originally Posted October 27, 2023 – Eyes on Amazon