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Big tech earnings blockbuster: how to trade Super Thursday

Chris Weston
Head of Research
26 oct 2020
While the US election is all-consuming, it's easy to forget that US Q3 earnings season is very much in play.

Q3 has been another tough quarter for US (and global) corporates. Given the political uncertainty, as well as a pick-up in the COVID-19 case count, it’s hardly the environment where corporates can offer clarity on their outlook and provide earnings guidance. Which is important if we’re to get positive earnings revisions, which would reduce incredibly elevated valuations.

Super Thursday: Amazon, Apple, Facebook and Google

Micro factors are overshadowed by the US election, what the outcome means for the size and scope of a fiscal stimulus and the prospect for a synchronised global economic recovery - a message portrayed in the chart of copper and other industrial metals.

Amongst all of this, there’s one date above all on the corporate earnings calendar that really stands out: the 29th October, a date that will not only interest equity traders but those who trade Pepperstone’s US equity indices the VIX index and even FX markets too.

Daily chart of copper: Dr. Copper seems to be telling us a clear message on the global economy.

We’ll see Amazon, Apple, Facebook and Google all report shortly after the US cash market close (8am AEDT). Pepperstone clients have the benefit of reacting real-time by trading these names (and others) in the after-hours session on MT5 or taking a position in one of the many US indices.

Why is this so important?

Given the strong performance since March and the change in market capitalisation, these four names alone equate to around a third of the NAS100 index weighting, and 15% on the US500. That’s a sizeable amount of index weight reporting in a very tight window and depending on the share price reaction could result in heightened broad market volatility.

Then, consider that over the past eight quarters the average move on the day of earnings, between these four names is a lofty 4.8%.

If we look at the options market and the implied move on the day of reporting, we see the average implied move (for these four names) is 3.1%. Granted, there is a high probability they don’t all move in the same direction at once, but this dynamic poses both opportunity and is also a key event risk for both equity and US equity index traders who have open positions.

(Daily chart of Amazon)

More than equities will be affected

If we do see a big move in NAS100 and US500 then it may also spill over into the FX markets, with the risk-sensitive AUD, NZD and MXN benefiting from a rally in US indices. While the traditional safe havens such as the CHF and JPY would outperform if we see a drawdown in equities.

It’s rare that such a small concentration of equity names holds the ability to influence an index, but this is one of those times. So, keep the 29th on the radar and whether you’re looking for opportunity or hold an exposure and need a heads-up on key event risk – this is certainly one to put on the radar.

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