By: Steve Sosnick, Chief Strategist at Interactive Brokers.

Yesterday was a nasty one for US equity markets, with major indices falling by nearly 3% or more. The month of April has been a particularly terrible one so far for most stockholders, with the S&P 500 Index (SPX) down over 9% and the tech-heavy Nasdaq 100 Index (NDX) down over 12% from the end of March through yesterday’s close. Today we are trying to bounce off the 4,200 level on SPX and the 13,000 level on NDX, which leaves the latter index perched on its year’s lows (SPX is about 100 points above its own lows). Much of the lift is being provided by Microsoft (MSFT), which provided another quarterly report after the close.

Back in the old days, when most stock trading involved one guy yelling at another, popularly traded stocks had nicknames like “I-beam” or “beamer” (IBM), “motors” (GM), and of course “Mister Softee” (MSFT). Those days have passed, but “Mister Softee” remains as firmly rooted in the market’s psyche as its namesake’s jingle. It is the second largest company by market capitalization, aided no doubt by beating its consensus quarterly EPS estimates for six years running. As I write this, the stock is up more than 6%, which is more than offsetting 3.5% declines in the two classes of Alphabet shares (GOOG, GOOGL).

We noted yesterday that options traders were pricing in positive results for both MSFT and GOOGL. Obviously, they were not expecting a miss by GOOGL, but they also proved to be less enthusiastic about MSFT’s prospects than was warranted. The peak probability was for a move to the $280-282 range, yet we have been trading around $285-287 for most of the day so far. 

The positive reaction to MSFT and similar enthusiasm for Visa’s (V) results is providing some much needed stability to the collective mindset after a tumultuous couple of days. Investors like to see when solid earnings are rewarded by the market. The focus on earnings is also offering a welcome distraction from two days of Elon Musk-driven market reactions. On Monday, declining markets were attempting to find support at the aforementioned SPX 4,200 level. The index was having some success bouncing off that psychologically key level when it appeared be bolstered by enthusiasm once the Twitter (TWTR) purchase agreement was finalized. One deal is not enough to boost the whole market to be sure, but a major takeover can indeed boost the market’s psyche.  Yesterday, it initially appeared that traders felt that they had been too enthusiastic during the prior session, then were dealt a blow when Russia announced it was cutting off natural gas supplies to Poland and Bulgaria. Yet the most notable weight upon US stock indices came from a company whose products famously shun gasoline. Traders took a sober look at how the TWTR deal would be financed, with Musk pledging Tesla (TSLA) shares as collateral for billions in bank loans and likely necessitating further stock sales to provide equity financing. Neither was taken as a positive for TSLA and its shares plunged 12%. Just as one deal can’t boost a market, one stock can’t single-handedly clobber it. But the gravitational pull of a 12% drop in the 5^th biggest company in leading indices simply cannot be ignored.

The next two days promise to be crucial ones for the market. Meta Platforms (FB) reports today after the close, and the negative reaction to its last result was a key blow to market sentiment. More importantly, we get Apple (AAPL) and Amazon (AMZN) after the close on Thursday. Those are the 1^st and 3^rd largest stocks in NDX and SPX. We have seen today how a positive result from the 2^nd largest company was able to more than offset a negative one from the 4^th. A pair of well-received results could provide a much-needed boost to wary investors, but a pair of misses could drive key indices to fresh lows for the year. And if the results are mixed, the reaction will be a matter of degree. Stay tuned, and in the meantime enjoy a treat from Mister Softee.