S&P 500 News: Market starts week with surprising dose of uncertainty
- Despite backlash on Thursday, S&P 500 gained 1.01% last week.
- S&P 500 reaches 4,590 to 4,637 resistance zone.
- The index has gained for nine of the last 11 weeks.
- July US Nonfarm Payrolls will be released on Friday.
- Amazon, Apple, Merck, AMD release quarterly results.
The S&P 500 remained flat a half hour into Monday’s first session of the week despite SoFi (SOFI) earnings pushing that neobank up more than 18% at the start of trading. The tech-focused NASDAQ Composite has fallen 0.15%, while the more value-oriented Dow Jones Industrial Index has made slight gains.
The S&P 500 added 1.01% last week despite experiencing a serious plunge last Thursday. The much-watched index has now advanced in nine of the past 11 weeks and seems poised to keep going despite technical indicators calling it overbought.
A flurry of major components of the index will release their second-quarter results this week, including Apple (AAPL), Amazon (AMZN) and Advanced Micro Devices (AMD). Additionally, the week will see the release of US Nonfarm Payrolls data for July.
At the time of writing in Monday’s premarket, S&P 500 futures – as well as NASDAQ 100 and Dow Jones futures – are ahead 0.15%.
S&P 500 News: Apple, Amazon arrive on Thursday
Apple and Amazon are the biggest firms reporting this week. As luck has it, both release calendar Q2 results on Thursday – making that day the primary focus for many traders.
Nearly half of the companies in the S&P 500 have already released their results over the past three weeks, and the news for investors has been quite positive to date. There is a clear trend in place. About 81% of reporting firms thus far have beaten their earnings consensus, while just 62% of firms have beaten revenue consensus forecasts.
From a Societe Generale client note: “Surprise factor: average EPS beat of 5.8% vs sales beat of 1.3%; margins have surprised, most likely driven by cost cuts and potentially also interest income […].”
Hence, while overall sales appear to be down, margins have outperformed Wall Street analysts and given a boost to profitability writ large. Tech, communications and consumer-focused firms have performed the best this quarter, while banks and other financials are underperforming.
Analysts have put out a quite mixed response for Apple’s upcoming earnings. Revisions to earnings per share (EPS) have been upward in 10 instances and down in 16 instances over the past 90 days. Wall Street expects Apple to earn $1.19 per share on revenue of $81.82 billion when it reports after the close on Thursday.
Amazon has received vastly more upward revisions to earnings forecasts than downward revisions over the past 90 days. Analyst consensus is at $0.34 a share on $131.34 billion in sales.
Nonfarm Payrolls expected to reach 200k on Friday
July’s US Nonfarm Payrolls (NFP) data will tell the equity market whether job hiring is continuing to slow down. June saw 209,000 new hires, which was well below the 225,000 figure that economists expected but still healthy.
For July, economists expect the NFP to arrive at 200,000. The market will most likely react positively to a lower number since it would give more weight to the belief that the Federal Reserve is already getting what it wants and, thus, will decide not to raise rates at its September policy meeting.
The central bank raised interest rates by 25 basis points last week, but the equity market responded well since Fed Chair Jerome Powell seemed wishy-washy concerning any future hikes this year. The CME FedWatch Tool now gives just a 20% chance of a 25 bps hike in September, and many pundits think the long rate-hiking cycle may really be over.
Still, a higher NFP number may lead enough traders to begin trimming their positions since a tight labor market could conjure further inflation ahead. Traders will also pay attention to Average Hours Earnings in the report, which consensus expects to drop from last month’s 4.4% YoY reading to 4.2% YoY.
Earnings of the week
Monday, July 31 – Western Digital (WDC), Arista Networks (ANET), Yum China (YUMC)
Tuesday, August 1 – Merck (MRK), Pfizer (PFE), Advanced Micro Devices (AMD), Caterpillar (CAT), Starbucks (SBUX), Uber (UBER), and Altria (MO).
Wednesday, August 2 – CVS Health (CVS), Shopify (SHOP), PayPal (PYPL), Kraft Heinz (KHC), Humana (HUM)
Thursday, August 3 – Apple (AAPL), Amazon (AMZN), Amgen (AMGN), AirBNB (ABNB)
Friday, August 4 – Enbridge (ENB), Dominion Energy (D), fuboTV (FUBO)
What they said about the market – Michael Wilson
Morgan Stanley equity strategist Michael Wilson is a noted bear, but even he is suggesting that 2023 looks a whole lot like 2019. That was a banner year for the index when the S&P 500 returned 29%. Wilson says the Fed pausing rate hikes and then trimming helped equities in 2019 – a similar pattern to what is happening this year.
“The data we have today suggests to us that we are in a policy-driven, late-cycle rally.”
NonFarm Payrolls FAQs
Nonfarm Payrolls (NFP) are part of the US Bureau of Labor Statistics monthly jobs report. The Nonfarm Payrolls component specifically measures the change in the number of people employed in the US during the previous month, excluding the farming industry.
The Nonfarm Payrolls figure can influence the decisions of the Federal Reserve by providing a measure of how successfully the Fed is meeting its mandate of fostering full employment and 2% inflation.
A relatively high NFP figure means more people are in employment, earning more money and therefore probably spending more. A relatively low Nonfarm Payrolls’ result, on the either hand, could mean people are struggling to find work.
The Fed will typically raise interest rates to combat high inflation triggered by low unemployment, and lower them to stimulate a stagnant labor market.
Nonfarm Payrolls generally have a positive correlation with the US Dollar. This means when payrolls’ figures come out higher-than-expected the USD tends to rally and vice versa when they are lower.
NFPs influence the US Dollar by virtue of their impact on inflation, monetary policy expectations and interest rates. A higher NFP usually means the Federal Reserve will be more tight in its monetary policy, supporting the USD.
Nonfarm Payrolls are generally negatively-correlated with the price of Gold. This means a higher-than-expected payrolls’ figure will have a depressing effect on the Gold price and vice versa.
Higher NFP generally has a positive effect on the value of the USD, and like most major commodities Gold is priced in US Dollars. If the USD gains in value, therefore, it requires less Dollars to buy an ounce of Gold.
Also, higher interest rates (typically helped higher NFPs) also lessen the attractiveness of Gold as an investment compared to staying in cash, where the money will at least earn interest.
Nonfarm Payrolls is only one component within a bigger jobs report and it can be overshadowed by the other components.
At times, when NFP come out higher-than-forecast, but the Average Weekly Earnings is lower than expected, the market has ignored the potentially inflationary effect of the headline result and interpreted the fall in earnings as deflationary.
The Participation Rate and the Average Weekly Hours components can also influence the market reaction, but only in seldom events like the “Great Resignation” or the Global Financial Crisis.
S&P 500 forecast
The S&P 500 has reached the 4,590 to 4,637 resistance zone that pushed the index lower back in February and March of 2022.
The Relative Strength Index (RSI) has reached 70 or the overbought stage on the weekly chart below, though bulls will note that the S&P 500 index has been largely overbought on the daily chart since early June. That said, it is still not safe to ignore. The last time the RSI reached 70 on the weekly chart in late November of 2021, the index followed one month later with the beginning of its -27%, 10-month decline.
A break above 4,637 will have bulls pounding the table for a retest of the all-time high at 4,818. In case Michael Wilson’s worries come to fruition, support sits at 4,500 and 4,325.
S&P 500 weekly chart