As October comes to an end, the US stock market is entering a volatile phase, especially before the release of the global “Mag 7” giant technology company earnings report.

In addition to non-agricultural, GDP, and PCE data, 170 S&P 500 companies released earnings data this week, accounting for 47% of market capitalization.

According to Bank of America Merrill Lynch's latest research report, the vulnerability facing US stocks has reached a record level, which makes investors wary of the upcoming earnings season.

Bank of America believes that at a time when financial reports are being released intensively, investors are paying more attention to the performance of individual stocks. Investors need to be extra cautious in this “historically most sensitive US stock” environment.

“Highly sensitive period” before financial reports

Bank of America Merrill Lynch's report indicates that 2024 has been one of the years with the most intense reaction in the past 20 years. Especially after the release of earnings reports, this kind of volatility is particularly obvious.

According to the data, the number of “vulnerability incidents” for technology stocks in the S&P 500 index (that is, a situation where the rise and fall rate in a single day exceeds three times the standard volatility) is approaching an all-time high.

“Vulnerability shocks in 2024 will be larger and more frequent than almost any other year since 1992.”

According to the data, the actual earnings response for this earnings season has exceeded the market's general expectations. This is only the second time in history. This means that during the financial reporting period, stock price performance is often more intense than expected by the market.

As mentioned in the report, Tesla's 22% rise after the release of its recent earnings report is a typical example, and the market's implied fluctuation expectation is only 4.6%. This sharp fluctuation, which exceeded expectations, revealed the “highly sensitive period” of individual US stocks at the time the earnings report was released.

Furthermore, since the upcoming US employment data and manufacturing index for October may be distorted by factors such as strikes and hurricanes, Bank of America advises investors not to overreact to possible weak data.

Bank of America predicts that in OctoberNon-farm payrolls dataApproximately 0.1 million new jobs will be recorded, of which approximately 0.05 million may be offset by strikes and hurricanes. Meanwhile, the unemployment rate is expected to rise back to 4.2%.

Mag 7: A Market Test for Tech Giants

According to the report, Mag 7'sOptions pricingCurrently low, which may mean that the market does not fully reflect the risk of volatility that these companies may bring after financial reports. Bank of America believes that Meta, Google, and Microsoft options are relatively cheap, but judging from the overall appeal, Apple's options are more worthy of attention.

The research report also pointed out that although fluctuations at the market level are low, at the individual stock level, the market has entered a “paradise for stock selectors.” At a time when financial reports are being released intensively, Bank of America suggests investors should pay more attention to the performance of individual stocks.

Bank of America believes that current market volatility is not just a phenomenon of the earnings season; overall market sentiment and macroeconomic uncertainty in 2024 have exacerbated this situation. For large technology companies in particular, investors need to be wary of sharp fluctuations in stock prices when earnings reports are released.