Facebook Reversal Lifts Markets, Though FAANG Jitters Linger

(Bloomberg) -- S&P Futures got a lift after a rush of tech earnings gave us a REAL market-moving event, after back-to-back non-events in the State of the Union and the Fed decision, but the move has been fading in the past couple hours to near flattish levels. Facebook initially sold off on jitters over usage declines before staging an impressive ~10% reversal off its lows once the numbers were digested and Zuckerberg got on the horn. Reasons for the bounce include 1) generally good numbers, 2) optimism over ad pricing, 3) CFO assuaging concerns that drop in North American daily active users won’t be a trend, 4) worries over newsfeed shift potentially getting played out, and 5) gushing takes from the sell-side so far.

Meanwhile Microsoft, which seemingly received way less attention, is flat on a beat and raise. Elsewhere in TMT earnings, we have Symantec down slightly, Qualcomm up almost 1%, Apple supplier Qorvo up 11% on a customer win, Paypal plunging 9% after eBay spurned the company and AT&T up close to 4% on a cheery cash outlook made possible by the tax bill.

Alibaba edging lower ~3%, had reported a beat though bigger deal is the company buying a stake in Ant Financial that, in turn, ends the profit-sharing agreement. All eyes now on the 60% of FAANG reporting tonight with Amazon likely first at 4:01pm followed by Alphabet minutes later and Apple at 4:30pm. The latter has the most swirling controversy surrounding it with negative sentiment from the sell-side spiraling over the past few weeks coupled with several troubling iPhone X media reports. The question is how much bad news is baked in, with Apple a notable underperformer vs the others year-to-date (AAPL down 1% vs NFLX +41%, AMZN +24%, GOOGL +12%, FB +6%), straddling that 100-day moving average at ~$167 and inching closer to an RSI of 30 versus almost every other member of the FAANG family swimming in overbought territory.

The shoot-first jitters we saw in Facebook were very real, and I’m reminded of the note this week from Bank of America strategists who combed data to show that large-cap mutual fund managers slashed their relative holdings in tech for the fourth time in the past five months and to the lowest level in nearly a year. Many still remain overweight the group, but I wouldn’t be surprised if any of the FAANG trifecta reporting tonight mimic the move Facebook made last night.

The drumbeat about GE getting the boot from the DJIA is getting louder and louder, though the question is who will be the replacement? Facebook? Amazon? (Amazon was talked about yesterday but absent a split would seem a prohibitively tough fit in the price-weighted gauge at $1,450). We’ve talked about Facebook making some sense, its market cap is four-times the size of GE and at $186 a share would fit snugly in the Dow’s current roster. Still, the whole speculation game here seems silly as it’s quite implausible that anyone outside of the Dow Jones walls really knows what’s going to happen, or when.

AM EARNINGS still to come..

  • Time Warner (AT&T DoJ lawsuit commentary), Mastercard (may set tone for Visa, which reports after the bell)
  • Healthcare: Awaiting more Amazon impact comments w/ McKesson and Cigna #’s coming
  • Energy: The Integrateds and refiners are starting to roll with Shell, Conoco, Valero and Marathon Petro.. Exxon and Chevron are both tomorrow
  • Autos & Machinery: Not earnings, but worth mentioning that auto sales will trickle in throughout the morning while Class 8 preliminary truck data (market moving for Cummins, Paccar and Navistar) usually hits early in the month

PM EARNINGS aside from the FAANG trio..

  • Besides Apple, Amazon & Alphabet, we’ll get GoPro (M&A commentary), Tableau (getting displaced?), the opticals (Viavi and II-VI), Mattel (M&A speculation w/ Hasbro), Decker’s (Marcato spat), Post (update on private brands options), OSI Systems (Muddy Waters target), and Amgen (Repatha sales)

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