Market Update

1. This week, major technology stocks announced Q3 earnings. Both Microsoft and Google underperformed, driven by the overall reductions in IT and ad spending. Facebook announced its earnings on Wednesday, causing its stock to plummet nearly 25% the next day and drop 70% so far this year. Amazon lowered its expectations for this holiday season’s sales, causing shares to fall 20% after its announcement on Thursday. Even though the United States emphasized the need to support the semiconductor industry, the industry leader Intel disclosed substantial layoffs and cost saving measures, and sharply lowered future revenue expectations. Overall, Apple’s stock performed slightly better than the others.

• In the past two years, when many people were optimistic about technology stocks, they often emphasized that technology is the mainstay of the market and immune to the overall economic slowdown. However, the latest company earnings and stock performance fall short of this expectation.
• The number of companies missing earnings estimates for the previous quarter hit a record high since 2009, and many companies have yet to report. From a technical analysis perspective, the S&P 500 struggled to break through the 50-day moving average on Wednesday and Thursday, and finally broke through on Friday. If it can stand firm, the existing rebound can be maintained for some time, but failure may bring the market lower.

2. The third-quarter GDP released this week rose 2.6% from a year earlier, ending two consecutive quarters of negative growth. It is an encouraging signal for the market.

• The data shows that private consumption in the U.S. remains strong in services while the demand for goods is slowing down. GDP growth is mainly due to lower imports, which is not good news for other export-oriented countries.
• Some analysts believe that third quarter GDP growth is an indication that recessionary risk has been eliminated. This could be disputable. As an example, the U.S. GDP contracted in the fourth quarter of 2007, but subsequently grew in the first and second quarters of 2008. In December 2008, the NBER announced that the U.S. entered a recession in December 2007. Thus, positive GDP growth alone does not prove that the threat of a recession is gone.