• Market Outlook

Markets rebound after sell-off, with tech and small caps bouncing back

After a week of turmoil and fierce sell-offs across the markets, there was a sharp turnaround in fortunes on Tuesday, fuelled by better-than-expected earnings reported by the US big banks, as well as Netflix, which was up as much as 14% in after-hours trading.

The positivity saw gains for the majority of the tech giants on Tuesday including Amazon, Facebook, Google, Salesforce.com and Nvidia, with stock prices generally stabilising around that level of gains. 

It’s a dramatic turnaround considering tech was the worst-performing sector in the S&P 500 on Monday. Salesforce.com and Netflix were down 3.2% and Nvidia dipped 3.1%. Amazon dropped 2.7% and Apple was down 1.4%. 

But after US banks including Morgan Stanley and Goldman Sachs, as well as Netflix, reported better than expected earnings on Monday, the market rebounded.   

By Tuesday close, the Dow was up 2.2%, the Nasdaq gained near 3% and the S&P 500 grew 2.2%, to recover a portion of the losses experienced last week and Monday. 

Small cap stocks, some of the worst hit during the sell-off, also rebounded. The Russell 2000 index gained around 3% in its best day in near two years. It had lost over 10% since the end of August.

On Wednesday, tech stocks continued to look strong, though many dipped slightly. Salesforce.com lost 0.3%, Google was down 0.5%, while Netflix gained over 5% on Tuesday. The Russell 2000 dipped less than 0.5% on Wednesday, while Morgan Stanley was up almost 3%, as was Goldman Sachs. 

The turnaround follows a week of losses across the market, with tech and small cap stocks experiencing some of the biggest dips. 

"It's a bounce back after an overdone situation last week," said David Joy, chief market strategist at Ameriprise Financial.

It remains to be seen whether the rebound is a full recovery however. Before the bounce Morgan Stanley’s Mike Wilson believed the sell-off would get worse before it got better.

Indeed, small and mid-cap stock drops tend to be a signifier of impending market correction. In 2007, the small-cap Russell 2000 hit its peak three months prior to the large-cap index, before the market crashed. 

Traders will now turn their attention to earnings of the other big tech players. Apple, Amazon, Microsoft all declare on 25 October. 

Apple could face a difficult Autumn with interest from China ebbing away, according to analysts at Citigroup, who warned against multiple signs of slowing consumer demand.

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