Morning Minutes 10/25/2018

Tesla Earnings Help Stocks to Bounce Back a Bit

October 25, 2018
9:45 am EDT

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Market Commentary By:
Colin Cieszynski, CFA, CMT
Chief Market Strategist
ccieszynski@siawm.com
+1 (647) 282-4428

Stock markets around the world have been trying to regain their footing in the wake of yesterday’s plunge with mixed success. Yesterday’s 600-point plunge by the Dow coupled with 3.0% and 4.4% losses for the S&P and the NASDAQ yesterday took the NASDAQ into correction territory down over 10% from its 52-week high, and wiped out all 2018 gains for the Dow and S&P.

On the open today, the Dow is up 0.6% or about 150 points while the NASDAQ is up 1.3% as bargain hunters step in. This looks encouraging but is too early to say if this is the start of a bottom forming or another dead cat bounce. Where the market closes today may provide a better indication of whether the bearishness and forced selling is finished or not. The VIX has come off slightly but remains elevated near 24. I suspect markets to continue to be volatile through to mid-November caught in a crunch between the US midterm election campaign and earnings season.

In Asia, the Nikkei plunged 3.7%, but a smaller 1.0% decline for the Hang Seng and a flat Shanghai market suggest China may be getting washed out. In Europe, the FTSE is down slightly and the Dax is up 0.2% but this action looks tentative relative to recent declines.

Earnings reports continue to drive trading swings in individual stocks. Tesla Motors soared over 10% in aftermarket trading but is up a more moderate 8.5% this morning, trading into the $310-$320 range. Last night the electric automaker announced a big surprise adjusted profit of $2.90 per share, the street had been expecting a $0.19 per share loss for the quarter. Sales of $6.82B came in above the $6.33B street estimate. It remains to be seen, however, if a rally can be sustained in the current volatile market environment. Last week, Netflix popped on a positive earnings report, but the enthusiasm didn’t last and NFLX finished yesterday below where it was when it reported results.

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