Tech earnings pull equities higher; have retail investors taken over the market? Tech earnings pull equities higher; have retail investors taken over the market? Tech earnings pull equities higher; have retail investors taken over the market?

Tech earnings pull equities higher; have retail investors taken over the market?

Equities 8 minutes to read
Peter Garnry

Head of Equity Strategy

Summary:  Better than expected earnings from Facebook, Tesla and Microsoft lifted equities to new local highs. The market seems for now to don't care about no company is offering any guidance and that Q2 is one big unknown. We also focus in this equity update on the increasing index weight concentration in S&P 500 and the evidence of retail investor bonanza driving sentiment in equities.

NASDAQ 100 futures were up 3.6% yesterday as technology earnings for Q1 continued to surprise positively. Sentiment is equities is strong and the NASDAQ 100 is now up 3.5% for the year despite the deepest recession since the 1930s is ahead of markets. On last night’s FOMC meeting and subsequent press conference Fed Chair Powell said that a V-shape recovery was very unlikely as society could go back and forth between opening up and locking down until a vaccine was found. Equities nevertheless powered on sending some technology stocks close to all-time highs.

While we understood the initial bounce back in late March from what was clearly an oversold environment due to margin calls we have been sceptical for weeks of the rally. But we have to accept the price momentum for now by the market and cannot rule out higher levels in equities until momentum has exhausted itself. We believe a big part of the price formation is driven by a retail investor bonanza which we will explain later on while institutional investors are more in a passive waiting position. With the end of April some larger institutional funds may consider rebalancing portfolios as the equity weights in portfolios have clearly gone up, so selling pressure from this investor group could arise in early May.

Source: Saxo Group

Also adding to sentiment in equities was a statement from Gilead Sciences that came back with an official statement on their drug Remdesivir for treating COVID-19 since the big debacle last week with Chinese studies at odds with US studies. Gilead’s press release on its phase 3 trial suggest faster recovery for patients compared to the control group. The FDA is considered an emergency approval for the drug already by Wednesday next week.

Earnings that moved the market

Facebook delivered a positive revenue surprise and EPS that was in line but what the market reacted to was the comment on the earnings call that the April advertising revenue had stabilised (see quote below). But it’s important to note that Facebook sees massive uncertainty and that since stabilisation could easily turn negative again as companies review their spending plans as the economy opens up.

“We experienced a significant reduction in the demand for advertising, as well as a related decline in the pricing of our ads, over the last three weeks of the first quarter of 2020. Due to the increasing uncertainty in our business outlook, we are not providing specific revenue guidance for the second quarter or full-year 2020, but rather a snapshot on revenue performance in the second quarter thus far. After the initial steep decrease in advertising revenue in March, we have seen signs of stability reflected in the first three weeks of April, where advertising revenue has been approximately flat compared to the same period a year ago, down from the 17% year-over-year growth in the first quarter of 2020. The April trends reflect weakness across all of our user geographies as most of our major countries have had some sort of shelter-in-place guidelines in effect. (Source: Facebook press release)

Tesla beat revenue estimates for Q1 while also delivering a surprise net profit but the latter was more of technical character as the EV maker delivered a free cash flow loss of $900mn compared to a gain of around $1bn in the previous quarter. The company did not spend any time on COVID-19 and how it has impacted the business which was unusual. Instead the company boasted its investments in factories, self-driving technology and that it what sure it would deliver industry leading operating margins. The CEO and co-founder Elon Musk also spent time on the earnings call to call the US government ‘fascist’ and ‘undemocratic’ for closing his Fremont car factory hinting that the impact may be significant for Q2.

Microsoft is arguably one of the best monopolies since Standard Oil and managed to deliver once again beating estimates on top and bottom line and improved its operating margins. Microsoft said there was minimal net impact on the business from COVID-19 but did raise that it could impact the business going forward. For now many new work-from-home setups and faster transition to cloud for many businesses helped the core OS and productivity business while the cloud business Azure grew revenue 59% y/y.

No guidance leaves the market guessing

Symptomatic for all earnings releases has been the skipping of any Q2 guidance and beyond. This means that investors are essentially flying as also companies have zero visibility as how the economic impact translate into business from here on. With the absence of information from companies we continue to argue that the best guess for future profitability remains the dividend futures market which for now is still only slowing improving trailing the excitement in equity markets.
Source: Bloomberg

Amazon and Apple

The next two technology and e-commerce giants are expected to be released after the close tonight with consensus expecting Apple to see revenue down 7% y/y and EPS down 9% y/y with products expected to be weak while their services segment is expected to have performed strongly. Consensus is looking for Amazon to see revenue up 24% y/y in Q1 and EPS up 28% y/y as the e-commerce and cloud computing giant benefitted from work-from-home policies and lockdowns. This is the last chance for bears to get their catalyst on the downside. If earnings from Apple and Amazon are strong sentiment could be bolstered even more.

Market concentration and retail investor bonanza

As we have been arguing for weeks it’s difficult to understand the behaviour in equities from a fundamentals viewpoint but we respect the market action. What we believe best explains the disregard of fundamentals is evidence that suggests that retail investors are entering the market at an unprecedented speed.

Charles Schwab has got 609,000 new client accounts in Q1 with half of those in March alone and record trading activity driven by zero commission on cash equity and ETF instruments in the US. It’s the same trend we observe among other US brokerages firms for retail investors and many retail investors were behind the catastrophic event around the USO ETF tracking front month WTI oil futures. Google Trend data suggest that the interest for equities have risen as casinos and sport betting have grinded to a halt due to the lockdown underscoring our view that the current market environment in equities is dominated by a bonanza of retail investors. But more problematic these investors typically don’t look at fundamentals but only look at charts and trades in names they can recognise which are often technology stocks.

Source: Bloomberg and Saxo Group

Another worrying sign is the fact that the 10 largest stocks in the S&P 500 now account for 25.4% of the index the highest level since the absolute peak during the dot-com bubble. This means that the market pricing is driven by fewer and fewer stocks increasing the risk in the system. It basically means that the entropy is falling which is often not sustainable for long.


Saxo Capital Markets (Australia) Limited prepares and distributes information/research produced within the Saxo Bank Group for informational purposes only. In addition to the disclaimer below, if any general advice is provided, such advice does not take into account your individual objectives, financial situation or needs. You should consider the appropriateness of trading any financial instrument as trading can result in losses that exceed your initial investment. Please refer to our Analysis Disclaimer, and our Financial Services Guide and Product Disclosure Statement. All legal documentation and disclaimers can be found at

The Saxo Bank Group entities each provide execution-only service. Access and use of Saxo News & Research and any Saxo Bank Group website are subject to (i) the Terms of Use; (ii) the full Disclaimer; and (iii) the Risk Warning in addition (where relevant) to the terms governing the use of the website of a member of the Saxo Bank Group.

Saxo News & Research is provided for informational purposes, does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. No Saxo Bank Group entity shall be liable for any losses that you may sustain as a result of any investment decision made in reliance on information on Saxo News & Research.

To the extent that any content is construed as investment research, such content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication.

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments.Saxo Capital Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Capital Markets or its affiliates.

Please read our disclaimers:
- Full Disclaimer (
- Analysis Disclaimer (
- Notification on Non-Independent Investment Research (

Saxo Capital Markets (Australia) Limited
Suite 1, Level 14, 9 Castlereagh St
Sydney NSW 2000

Contact Saxo

Select region


The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit

Saxo Capital Markets (Australia) Limited ABN 32 110 128 286 AFSL 280372 (‘Saxo’ or ‘Saxo Capital Markets’) is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms, Financial Services Guide, Product Disclosure Statement and Target Market Determination to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Saxo Capital Markets does not provide ‘personal’ financial product advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Capital Markets does not take into account an individual’s needs, objectives or financial situation. The Target Market Determination should assist you in determining whether any of the products or services we offer are likely to be consistent with your objectives, financial situation and needs.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website is not intended for residents of the United States and Japan.

Please click here to view our full disclaimer.