Premium Learn weekly review: GDP Grows Faster Than Expected, Tech Earnings Fail to Boost Market Sentiment?

On Thursday, October 26th, the US GDP for Q3 surpassed expectations with a YoY growth rate of 4.9%, exceeding the previous value of 2.1% and the market's anticipated 4.5%. This marks the fastest growth in two years. So, how will the GDP growth rate affect the stock market going forward?

Currently, the market is concerned with two risks: "The economy quickly deteriorates under high-interest rates" and "The economy continues to overheat, stubborn inflation, and the Fed has to maintain high-interest rates, possibly even raising them this year to control inflation."

The Q3 GDP clearly dispels the first concern, but as for whether the overheated economy would directly impact inflation, we need to note that the Q3 data only covers the period from July to September and cannot influence future data!

Therefore, although the GDP data displays strong tendencies, we can observe a weak trend in the core PCE price index, which grew by 2.4% MoM, lower than the estimated 2.5% and the previous 3.7%. Additionally, the initial and continuing jobless claims, announced on the same day, exceeded expectations, reflecting a cooling employment market.

Moreover, the ECB(European Central Bank ) decided to pause interest rate hikes, signaling a positive turn after ten consecutive interest rate hikes.

As inflation weakens, the possibility of monetary policy easing, gives financial markets more growth potential. Nevertheless, the stock market has performed poorly this week due to factors such as the Middle East conflict, rising US bond yields, safe-haven assets like gold, the strengthening US dollar, and tech stock earnings reports failing to boost market confidence.

This week is the busiest for Q3 earnings reports, with about 40% of S&P 500 components releasing their results. The focus is primarily on the largest US tech giants by market capitalization.

These mixed results show that even if earnings exceed expectations, differences in focus can still cause stock prices to decline. To some extent, this reflects the ongoing anxiety in the market, especially after a sustained rise in US tech stocks earlier this year, which led to high valuations.

This week, we learned a very practical technical indicator called ATR(Average True Range), which helps evaluate market volatility. With ATR, we can get a rough idea of the potential daily price fluctuation range, which can, in turn, help us develop better stop-loss and take-profit strategies.

It's worth noting that the ATR indicator doesn't reflect the direction of price movement. It merely measures volatility.

➤ If the ATR is high, it's usually due to rapid price changes. However, this kind of violent fluctuation typically doesn't last too long, making it a potential signal for a market breakout or reversal.

➤ If the ATR is low, this usually occurs during a low-volatility consolidation phase. In this case, investors may have an opportunity to engage in range trading.

Driven by optimistic expectations for the huge potential of the Southeast Asian e-commerce market, its stock price has been rising steadily until reaching record highs in 2021, with a surge of over 1000%. However, due to pandemic-related pressures and the US Federal Reserve's consecutive interest rate hikes, growth stocks faced immense pressure, leading to a 90% drop in Sea Limited's stock price from its peak.

There are key points that we need to focus on:

1. In 2022 SEA achieved a four-quarter profit turnaround by reducing salaries as well as trimming operating costs through layoffs.

2. Despite the profit turnaround, the Q23 earnings report showed a huge decline in SEA’s growth rate, triggering investor concerns about its growth.

3. For SEA, Southeast Asian e-commerce competition is very fierce, especially in Indonesia, where SEA’s market share is ranked No. 1 in 2022.

4. In the future, SEA hopes to maintain the market share of its e-commerce business by increasing investment, but it may also face the risk of profit decline.