Investors Face a Collision of Catalysts in 5 Market-Moving Events
An unusual number of significant happenings will likely cause enhanced volatility in the near term.
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Investors are moving into position for a series of significant events that will shape the next phase in the market's journey. There has been intense rotation out of some of the leading AI names, while small-caps and secondary stocks have seen a historic rally.
The AI Reshuffle
The most significant recent development is that the AI bubble has not popped as the bears have been predicting; it has deflated, and there is a reshuffling of the leading names. Some of the key Magnificent Seven names, such as Apple (AAPL) , Microsoft (MSFT) , and Meta (META) , have corrected deeply, while Alphabet (GOOGL) and Micron Technology (MU) have emerged as leaders. Investors have moved away from some of the most expensive and extended AI stocks and into many smaller names in groups like biotechnology (IBB) that have lagged for years.
Over the last couple of days, the rotation that has been taking place since October has reversed, with the Mag 7 rebounding as investors await major earnings reports. The rebound is due in large part to the thinking that the corrective action in some names has gone too far and that earnings reports will be positive enough to attract fresh buying.
A Collision of Catalysts
The first big earnings reports will be on Wednesday night when IBM (IBM) , Meta, Microsoft, and Tesla (TSLA) report. Apple is set to follow the next day.
Earnings news will likely increase volatility, but several other events will also impact the market. The Federal Reserve will issue its latest interest rate policy decision a couple of hours before those earnings reports on Wednesday. Markets widely expect the Fed to hold rates steady at 3.5% to 3.75%, but the focus will be on Chair Jerome Powell's press conference.
There is also the growing possibility of another government shutdown if a deal is not made by the Friday, January 30 deadline. Trade issues are heating up as well, with a historic "mother of all deals" between the EU and India finalized late Monday night. The Supreme Court is not expected to rule on tariffs until at least February 20, which will keep that issue on the sidelines for now.
Meanwhile, the yen has cooled off after a sharp move higher against the dollar, which has helped to support bonds.
Managing the Volatility
The unusual number of significant market catalysts that will likely cause enhanced volatility can be both good news and bad news. Big random swings can make holding positions uncomfortable and could trigger stops and technical selling if they are severe enough. On the other hand, volatility can create mispricing and offer good opportunities if you understand valuations.
My game plan is to focus on managing my risk levels in individual stocks that will be reporting earnings soon. Holding large positions into earnings news is very risky, but a lot depends on the technical setups that are developing. For example, the corrections in names such as Apple have helped to diminish the potential for a sell-the-news response.
My best advice is stay very vigilant and be ready for earnings news to create some big moves.
We have a positive open underway on Tuesday morning.
At the time of publication, Rev Shark was long GOOGL.
