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Q3 Earnings Fuel ‘Epiphany’ Phase of Rally

Heading into Thursday, the Nasdaq had been down four of the prior five days as traders took a more cautious tone as to whether the market’s big-cap tech darlings would deliver third-quarter results that would satisfy investor sentiment. There was a feeling that organic growth estimates might have gotten too optimistic. There was a growing feeling that a general rotation out of the FAANG stocks (Facebook, Apple, Amazon, Netflix, Google) and into industrials and financials was a development that might suck the oxygen out of the momentum that had served the FAANG rally so well.

Boy, were the skeptics wrong. The market already had the luxury of Netflix reporting Q3 results back on Oct. 16 that took its shares to a new all-time high, and this should have been a telltale sign there was more good news to come because what Netflix provides involves discretionary spending. Thus, it should have been no surprise that Amazon blew past its estimates, chalking it up to the massive sign-up of Amazon Prime accounts at the end of the second quarter from none other than “Amazon Prime Day.” America loves immediate delivery of deeply discounted goods.

But it didn’t stop there. Following an earnings bump in the road during the second quarter, Alphabet (GOOGL) had several analysts wondering whether the browser king had seen its best days of organic growth. Then, the company posted numbers that hit estimates out of the park, to the point that even Mr. October, Reggie Jackson, would have been impressed. As a result, come the morning of Oct. 27, the Nasdaq had two darlings trading north of $1000 per share. This kind of upside surprise from two behemoth tech companies is, in my view, an “epiphany” moment for traders and investors.

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