Intense Game! When the "most sensitive US stock in history" meets "Mag 7 financial report"

As October comes to a close, the US stock market is entering a volatile phase, especially with the highly anticipated earnings reports of the "Mag 7" major tech companies globally.

In addition to non-farm payrolls, GDP, and PCE data, 170 S&P 500 companies will also release their earnings reports this week, accounting for 47% of the market value.

According to the latest research report from Bank of America Merrill Lynch, the vulnerability of the US stock market has reached a record level, making investors cautious about the upcoming earnings season.

Bank of America believes that in the current environment of intensive earnings releases, investors are paying more attention to individual stock performance. In this "most sensitive period in US stock market history," investors need to be extra cautious.

"High Sensitivity Period" Before Earnings Reports

Bank of America Merrill Lynch's report points out that 2024 has become one of the most volatile years for US stocks in over two decades, especially after earnings reports, this volatility becomes more pronounced.

Data shows that the number of "vulnerability events" (i.e., daily price fluctuations exceeding three times the standard volatility) for tech stocks in the S&P 500 index is approaching historical highs.

"The vulnerability shocks in 2024 are larger and more frequent than almost any other year since 1992."

The report mentions that the actual earnings reactions this earnings season have exceeded market expectations, which has only happened for the second time in history. This means that during earnings season, stock price performance tends to be more volatile than market estimates.

The report highlights Tesla's recent 22% surge after earnings as a typical case, while the market's implied volatility expectation was only 4.6%. This unexpected and significant volatility reveals the "high sensitivity period" at the individual stock level during earnings releases in the US stock market.

Furthermore, due to potential distortions in the upcoming US October employment data and manufacturing index due to factors such as strikes and hurricanes, Bank of America advises investors not to overreact to possible weak data responses.

Bank of America expects that the October non-farm payrolls will show an addition of around 100,000 jobs, with about 50,000 jobs likely offset due to strikes and hurricane factors. At the same time, the unemployment rate is expected to rise to 4.2%.

Mag 7: Market Test for Tech Giants

The report points out that the options pricing for the Mag 7 companies is currently low, which may indicate that the market has not fully reflected the potential volatility risks after these companies' earnings reports. Bank of America believes that options for Meta, Google, and Microsoft are relatively cheap, but in terms of overall attractiveness, Apple's options are more worth paying attention toThe research report also pointed out that, although the overall market volatility is low, at the individual stock level, the market has entered a "stock picker's paradise". With the intensive release of financial reports, Bank of America Merrill Lynch advises investors to pay more attention to the performance of individual stocks.

Bank of America Merrill Lynch believes that the current market volatility is not just a phenomenon of the earnings season, but the overall market sentiment and macro uncertainty in 2024 have exacerbated this situation. In particular, for large technology companies, investors need to be vigilant about the possibility of significant price fluctuations when financial reports are released