How Stock Market Indices Are Taking Cues from Microsoft

October 28, 2019 17:01 UTC
  • Microsoft stock is trading at an all-time high.
  • The stock was buoyed after the Pentagon awarded Microsoft a key contract.
  • MSFT has the tailwind of cloud services at its back.

Microsoft (NASDAQ:MSFT) stock is spiking to an all-time high on headlines that it secured a lucrative contract from the U.S. government. This goes directly against Amazon (NASDAQ:AMZN), which is the current leader in cloud services with its AWS unit. The news coincides with President Trump expressing dislike for Amazon CEO Jeff Bezos. POTUS  has been vocal about AMZN contracts with the U.S government.

MSFT effect on the equity markets

MSFT just reported a strong quarter. So clearly Wall Street approves of its execution on plans, especially when it comes to its efforts in the cloud segment. This latest Pentagon headline cements that as fact. MSFT stock is up 40% year-to-date, which is double that of the S&P 500. So it is safe to assume that the competition is gaining on AMZN even though there is more room to go. So what’s good for Microsoft stock is good for the major indices and vise versa.

MSFT stock hit a new all-time high today. | Chart: TradingView

To that point, the Nasdaq is full of companies that also serve the cloud. So the same tailwind that is blowing behind MSFT is also blowing behind hundreds of other companies that are operating in the cloud. Furthermore, this migration onto the ether is a global trend that won’t reverse for a long while.

The new business that MSFT gained could be emblematic of the opportunities that still lie ahead for technology sectors. So a breakout in Microsoft is also lifting the indices up along with it just like it did in September. Yes, there are geopolitical risks from China and Europe. But headlines aside, the earnings reports so far are telling a more optimistic story than feared. The U.S. is also headed into an election season, so there will be pressure to show a good report card by the incumbents. As a result, they are motivated to help out where they can.

Critics tell the other side of the story

Not everyone is of the opinion that stocks should be this high. This is no shortage of those who believe that Wall Street will have a tough time in the fourth quarter. Equities are at all-time highs with so many potential risks looming. This could be a sign of complacency, and that’s when major problems arise unexpectedly. But this is what makes markets where there are at least two sides to every story; only time will tell who is right.

The week’s binary effect

This week, there is so much going on that the outcome for stocks is completely binary. This is the busiest earnings week of the season with Alphabet (NASDAQ:GOOGL) reporting tonight. In addition, we will learn of the Fed’s decision towards interest rates amidst a slew of very important economic reports including the ISM U.S. manufacturing PMI and payroll data.

This article was edited by Gerelyn Terzo.

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@racernic

I am the luckiest guy in the world since I get to trade stocks and options and write about it. Before my obsession with Wall Street, and thanks to a B.S.E.E and an M.B.A., I climbed the corporate ranks to the top. I even had a couple of startup hits during the early 2000 boom. But for the last few years I have been honing my skills as a chartist and a trader and sharing my knowledge. I want to bring Wall Street expertise to Main Street. I consider success when I can identify an opportunity, gauge the risks involved, then finally set it up to yield its maximum potential.