S&P 500 News: Index moves sideways as it looks overbought
- Standard & Poor’s 500 index has advanced 10.7% over the previous four weeks but opened lower on Monday.
- Market offers plenty of earnings releases this week, including Snowflake, Crowdstrike, SalesForce, Kroger and Dollar Tree.
- New Homes Sales Change for October came in at -5.6%.
- US Treasury yields are receding on Monday across the yield curve.
- Thursday’s October PCE report on inflation is the most-watched data release of the week.
The S&P 500 index opened lower on Monday following four weeks of gains. The index has gained 10.7% over the course of these previous four weeks, and last week it proved to be the fastest reversal out of a correction since the 1970s, according to data from Dow Jones.
While US Treasury yields wound lower across the yield curve to start the week, New Homes Sales tumbled in October to 679K, down 5.6% from the previous month’s 719K print. Consensus was 725K. This may be part of the reason for stock market reticence on Monday.
Good news arrived on Shopify’s (SHOP) data for Black Friday shopping, but much of the market is focused on Thursday’s Personal Consumption Expenditures (PCE) data, which has traders expecting a further reduction in the growth of inflation.
S&P 500 News: Earnings this week showcase enterprise software and retail
Salesforce (CRM) is the biggest earnings focal point for S&P 500 components this week. Released in Wednesday’s post-market, the enterprise software company has seen unanimity among analysts in raising earnings per share (EPS) forecasts for the fiscal third-quarter 2024 results. Consensus sees the company founded and still run by CEO Marc Benioff earning $2.06 in adjusted EPS on $8.72 billion. Profits are expected to decline slightly from the most recent quarter’s $2.12 adjusted EPS, but sales are supposed to climb 1.4% from fiscal Q2.
Zscaler (ZS), Crowdstrike (CRWD) and Snowflake (SNOW) – appearing on Monday, Tuesday, and Wednesday, respectively – will be the most-watched releases in the tech space, but none of the three are components of the S&P 500.
Instead, Intuit (INTU), Hormel Foods (HRL), Kroger (KR) and Dollar Tree (DLTR) will be watched by index traders.
Intuit is expected to report $1.98 in adjusted EPS on $2.88 billion in sales on Tuesday.
Analysts are quite pessimistic on Hormel Foods’ release on Wednesday. The owner of dozens of supermarket brands is expected to earn $0.45 in adjusted EPS on $3.27 billion in sales, but it has missed revenue consensus for four consecutive quarters.
Dollar Tree is another retail-focused company with results out Wednesday. The downscale retailer is expected to witness a quarterly rise in results to $1.01 in EPS on $7.43 billion, but most analysts are skeptical of the company. The DLTR stock price is down nearly 17% year to date.
On Thursday, Kroger will add to the week’s retail survey. The market will mostly want to hear about how the Albertsons acquisition is panning out, but analysts take a dim view as the grocery chain has missed the mark on revenue for three quarters running.
Thursday’s PCE is expected to show more good news on inflation front
The October PCE data on Thursday will likely move the market, which desires further confirmation that inflation is indeed stalling out. Any reading above consensus could drive a market sell-off as well. Reduced inflation readings will tell the market that Fed rate cuts could be moved up on next year’s calendar. Currently, the market expects the first cut to arrive at the May 2024 meeting.
Monday’s consensus, which sometimes changes closer to the release, calls for monthly Core PCE to fall from 0.3% to 0.2%. The annual Core PCE consensus is expected to fall from 3.7% to 3.5%.
Headline PCE, which includes food and energy prices, is expected to drop from 0.4% in the previous month to 0.1% in October. Annual headline PCE is forecast to decline from 3.4% last month to 3%. Core PCE is much more important to Fed officials though.
Semiconductor stocks FAQs
A semiconductor is a term for various types of computer chips. Officially called semiconductor devices, these computer chips rely on semiconductor materials like silicon and gallium arsenide to process the electrical current that produces the modern world of computing. They come in many shapes, sizes, enhancements and configurations such as diodes, transistors and integrated circuits to more complicated applications like DRAM memory, simple processors and even GPUs.
First, there are the pure chip designers, such as Nvidia, AMD, Broadcom and Qualcomm. These companies use sophisticated software to design and test chips. Second, there are the equipment manufacturers that provide the machines necessary to build computer chips. These include ASML and Lam Research. Then, there are foundries that manufacture the chips. These include Taiwan Semiconductor and GlobalFoundries. Last of all are the integrated device manufacturers who design their own chips and additionally manufacture themselves. These include Samsung and Intel.
It is the observation that the number of transistors in an integrated circuit doubles every two years. The “law” is named after Gordon Moore, who founded Fairchild Semiconductor and later Intel. The doubling is possible due to the shrinking size of process nodes or parts in the computer chip. In 1971 the advanced commercial manufacturing had reached 10 microns in width. In 1987 semiconductor technology had advanced to 800 nanometers in width. By 1999, this process had moved to 180 nanometers. By 2007, the size had dropped to 32 nanometers, and this fell all the way to 3 nanometers in 2022, which is close to the size of human DNA.
In 2022, the global semiconductor industry had revenues just under $600 billion. In total, the industry shipped 1.15 trillion semiconductor units in 2021. The leading nations involved in the semiconductor supply chain are Taiwan, the United States, China, the Netherlands, South Korea, Japan and Israel.
Earnings of the week
Monday, November 27 – Seadrill Limited (SDRL), Zscaler (ZS)
Tuesday, November 28 – Hewlett Packard Enterprise (HPE), CrowdStrike (CRWD), Intuit (INTU), Workday (WDAY), Splunk (SPLK), NetApp (NTAP)
Wednesday, November 29 – Dollar Tree (DLTR), Hormel Foods (HRL), Salesforce (CRM), Snowflake (SNOW)
Thursday, November 30 – Dell Technologies (DELL), and Kroger (KR), Royal Bank of Canada (RY), Toronto-Dominion Bank (TD)
Friday, December 1 – Bank of Montreal (BMO)
What they said about the market – Brian Belski
Brian Belski, chief investment officer at BMO Capital Markets, has joined Deutsche Bank in providing the most bullish prediction for 2024 in regard to the S&P 500 performance. Belski says that 5,100 is his bet for the index ending value next year. This is well above the January 2022 all-time high of 4,796. Belski bases his argument on his forecast for the S&P 500 index to earn $250 next year, which is a much higher guess than many peers.
“We believe 2024 will be Year 2 of at least a 3-5 year process that will see US stocks exhibit more normal and typical performance, paced by a backdrop of normal and typical GDP and earnings growth, valuation, and bond yield ranges”
S&P 500 forecast
Including Monday’s performance thus far, it looks like the S&P 500 index has reached a serious level of resistance at 4,560. Last Wednesday and Friday also experienced low-volatility near this threshold, although that could be blamed on the Thanksgiving holiday.
Support sits nearby at the 4,541 level that stems from the lower high on September 1. If it fails to hold, then a drop back to the 20-day Simple Moving Average (SMA), now at 4,417, could be in order. A pullback seems quite likely as the S&P 500 sits in slightly overbought territory on the Relative Strength Index (RSI).
S&P 500 daily chart