Market Preview: Merger Induced Rally Fades, Earnings from Facebook, Coke, General Motors

Markets attempted to rally Monday morning on the news IBM (IBM) was purchasing Red Hat (RHT) for $34 billion to beef up its cloud business. The merger, combined with a bounce in beaten down financial stocks, had markets higher Monday morning. But the rally could not hold as the day wore on. Stocks were once again led lower by members of the FAANG cohort as Amazon (AMZN) dropped over 6%, followed closely by Netflix (NFLX) down almost 5%, and Facebook (FB) which dropped over 2%. Growth stocks continue to take the brunt of the market selloff, driving the Nasdaq down another 1.63% on Monday. Investors, who had hoped earnings season might turn the market higher again, have been disappointed thus far. With no trade war resolution on the horizon, it is not readily apparent where the next positive catalyst for the markets may appear.

Tuesday, earnings will be released by Facebook (FB), Pfizer (PFE), Mastercard (MA) and Coke (KO). Facebook has been under intense scrutiny for activity on its platform recently, including election tampering and unauthorized use of data. But analysts fear there is another shoe to drop for the social media company, slowing ad revenue. Investors should watch earnings, which are almost entirely from ad revenue, for any hint of a slowdown. Pfizer earnings may be more about the company’s drug roadmap moving forward than this quarter’s earnings. The company is looking for approval for several major drugs in the next few years as it loses patents on several of its current offerings. Analysts expect an update on the drugmaker’s progress in adhering to their current projections for approvals.

Economic reports kick off Tuesday morning with Redbook retail numbers, the S&P Corelogic Case-Shiller Home Price Index, consumer confidence, and the State Street Investor Confidence Index. The Case-Shiller monthly numbers fell off a cliff in late spring and have failed to recover the rest of the year. Analysts are expecting a .1% rise for August. Consumer confidence is expected to dip slightly after reaching an 18 year high in September. The ADP jobs number will headline Wednesday’s economic news. The report is expected to come in at 178k for October, a decline of 52k from the September number. MBA Mortgage Applications and the employment cost index will also be released Wednesday morning.  

October 31st earnings include numbers from General Motors (GM), Allstate (ALL), Express Scripts (ESRX), and Automatic Data Processing (ADP). General Motors guided lower for the year last quarter due to increasing commodity prices and a falloff in the Chinese market, and the stock paid the price. GM appeared to be riding the coattails of a Goldman Sachs upgrade of Ford (F) on Monday as the overall market faltered. Analysts will be looking for how the car company plans to address both continued tariffs and an apparently further weakening Chinese market. Investors will be looking to Allstate for an update on the ongoing success of its advertising campaigns. The stock jumped higher after last quarter’s earnings, which CEO Tom Wilson partially attributed to an enhanced ad campaign that allowed the company to more succinctly target potential customers.

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