Amazon Sparks a Tech-Led Market Bounce

Blowout sales and earnings from Amazon in Q3 — but the real story is their capex plans.

Key Takeaways

• Sentiment Reaches Extreme Levels: A word on sentiment, which has hit an extreme equal to those for valuations and market concentration. Market Vane bullish sentiment is pressing against 70%, which is near the very high end of the historical range. Not just that, but the share of bears in the Investors Intelligence survey, at a mere 13.5%, is close to the lowest level ever recorded.

• Price-to-Sales Ratio Off the Charts, Especially in Tech: The S&P 500 price-to-sales multiple has expanded to 3.5x from around 3.0x a year ago and 2.5x two years ago and is nearly double the historical norm. And look at the Tech sector — over a 10x price-to-sales ratio, which is more than double the long-run average — and the +7.2-point gap with the overall market is unprecedented and almost triple the historical mean.

• Cooling in the Labor Market is Not Gradual: Jay Powell said there is a “gradual cooling” in the labor market, but it is more than that. The Intuit small-business employment growth figures for September showed a net decline, as has been the case in three of the past four months. The Q4 Manpower survey also showed net hiring intentions faltering to 28 from 30 in Q3 and 34 in Q2, now at a four-and-a-half-year low.

While We Were Sleeping

Amazon’s share price is zooming after its blowout Q3 earnings and sales numbers, but the overall market reaction has actually been fairly muted thus far — though Nasdaq futures are clearly leading the way. There is also very little thrust coming from this U.S.-China temporary trade truce… all that was revealed was how many cards Xi Jinping holds (see the Lessons From Trump’s China Trade War editorial piece on page A14 in today’s WSJ, and there is very little for American consumers to rejoice about given a still-punishing 45% average tariff rate on Chinese-made goods). The Magnificent 7 group now accounts for an incredible one-third of the S&P 500 market cap, and the ex-tech S&P 500 is no higher today than it was six weeks ago.

The bull market is in bifurcation. What stood out with Amazon, beyond the