On another positive side, if you will, the Fed increased the liquidity injections in the repo market to $120bn. The bulls will say more stimulus is good for risky assets because the Fed is on the ball and getting ahead of the curve, and the bears will say it shows things are rotten deep inside the machine room of money markets. It’s too early to call which narrative will win. For now, it seems most investors believe the repo market stress and Fed’s injections are less important.
Microsoft (MSFT:xnas) delivered FY20 Q1 earnings last night and beat both on the top and bottom line while indicating expectations of a strong FY20 Q2 result. However, the market was less impressed with the shares unchanged in extended trading. Tonight, after the US market close Amazon will report earnings which we have said is important for market sentiment as investors are worried about a margin squeeze and growth slowdown for the e-commerce giant. But there were clues in Microsoft’s earnings report that Amazon will beat earnings estimates as Microsoft said margin improved in its cloud business and expected it to continue improving. If Amazon has same tailwind this bodes well for tonight’s earnings release. As we wrote this Monday, good earnings from Microsoft and Amazon given their combined 7.2% weight in the S&P 500 Index is all its takes for the S&P 500 to set a new record. Given the positive momentum today, and given we don’t get any bad macro headlines, and Amazon delivers tonight then it’s not unlikely that S&P 500 will see a new high today.