S&P 500 bulls are struggling to sustain upward momentum

Stock bulls are struggling to sustain much upward momentum this week. Some traders are pointing to heavy technical resistance for the S&P 500 at 4,000, a key psychological level that the index hasn't closed above since early September.

Q3 earnings

As Q3 earnings draw closer to wrapping up, investors are also heavily debating valuations and whether recent results and forward guidance justify pushing stocks prices higher.

Major retailer Target reported disappointing results yesterday with profits falling more than -50% in Q3.

The company also warned that slowing sales in the third quarter have continued even as the critical holiday season approaches. Similar to Walmart the day before,

Target also pointed to spending patterns that reveal increasing strain on consumer budgets. The pullback in consumer spending revealed by retailers this week was not necessarily reflected in the October Retail Sales report, though, which showed data that climbed +1.3%.

Even stripping out gas and autos, and adjusting for inflation, retail spending still showed a gain, though details indicate much of the growth is coming from gas stations and restaurant and bar sales.

To be fair, not all retailers have disappointed. Lowe's yesterday topped expectations, as did rival Home Depot earlier. And while Walmart, the world's largest retailer, warned of strained consumers, the company's earnings results were still better than expected. Still, Q3 earnings haven't been anything to write home about with S&P 500 companies on track to gain just +2.2% heading into this week.

Forecasts

More importantly, expectations for Q4 have now turned negative with analysts anticipating a decline of -1%. That's down from an expected growth rate of +9.1% this summer.

Bulls still believe there is room for stocks to push higher with help from both seasonal year-end trends as well as a slightly less aggressive Federal Reserve.

Also historically, stocks tend to rally a bit into yearend. Since 1945, the S&P 500 has averaged a jump of around +1.4% in November and +1.6% in December. That includes 66% of Novembers and 77% of all Decembers.

As for the Fed, most on Wall Street now anticipate the central bank will shift to 50-basis point rate hikes starting in December, versus the previous four consecutive hikes of 75-basis points.

Bears argue that the market has already priced in those expectations, but many bulls still think improved inflation and wage data in December could reignite hopes for an even faster end to the Fed's tightening campaign in 2023 and help stocks climb into year end.

Data to watch

Today, investors will be digesting Housing Starts & Permits and the Philadelphia Fed Manufacturing Index.

Earnings highlights include Alibaba, Applied Materials, The Gap, Kohl's, Macy's, Nintendo, Palo Alto Networks, Ross Stores, Siemens, and Williams Sonoma.