S&P 500 Forecast: Index futures gain early Wednesday after Netflix hikes guidance
- The Standard & Poor’s 500 edged up 0.29% on Tuesday after last Friday’s first all-time high in two years.
- Alongside US GDP figures on Thursday comes Durable Goods Orders.
- US PCE inflation data will be released on Friday and is expected to fall on an annual basis.
- Netflix, Tesla, Intel, Visa all report earnings this week.
S&P 500 futures have gained 0.6% before the open on Wednesday following Netflix's (NFLX) guidance raise for the current quarter (Q1). The streaming platform missed earnings consensus for the fourth quarter late on Tuesday but raised its Q1 guidance to $4.49 compared with prior consensus of $4.14.
That is enough to push NFLX stock nearly 10% higher in Wednesday's premarket. The S&P 500 has advanced for four straight sessions and looks poised to notch a fifth on Wednesday.
Intuitive Surgical (ISRG) posted an earnings beat for the fourth quarter late Tuesday as well. Adjusted earnings per share (EPS) arrived at $1.60, 11 cents above consensus, and revenue of $1.93 billion rose 16% YoY, beating the forecast by $30 million.
The S&P 500 index has registered two all-time highs in quick succession. The first came last Friday, when the index overcame the 4,818 level for the first time in more than two years. Monday saw a new record high, but the index sold off late in the session. The new records are good news for the stock market, which has suffered in January due to reduced expectations for rate cuts in the new year. Bets on a rate cut at the Federal Reserve’s (Fed) March meeting have dwindled from 76% to 41% over the past month.
This week’s forecast should hinge on the onslaught of companies releasing fourth-quarter earnings results and several economic indicators released on late in the week. The major release of the week, US Personal Consumption Expenditures (PCE), will detail the US economy’s fight with inflation. That report will be preceded by GDP, Durable Goods Orders and Manufacturing and Services PMIs.
S&P 500 News: Tesla, Netflix lead cramped week of earnings
Johnson & Johnson (JNJ) beat earnings consensus for Q4 early Tuesday, but shares of the pharmaceutical giant still trended lower. The company reiterated 2024 guidance, and Q4 revenue rose 7% from a year ago.
Tesla (TSLA) follows on Wednesday. The electric vehicle leader faces consensus of $0.74 in adjusted EPS on revenue of $25.76 billion. Shareholders will brace for statements regarding the 2024 guidance, and shares will likely move based on that news. Additionally, the market is eager to learn how a new contract with CEO Elon Musk is coming along. Musk has said publicly he requires at least 25% ownership in the company to continue leading the Tesla's artificial intelligence (AI) efforts, adding that he may build those businesses outside Tesla.
Visa (V) and Intel (INTC) follow on Thursday. Visa is expected to earn $2.34 in adjusted EPS on $8.55 billion in revenue. Wall Street’s consensus for Intel is $0.45 in adjusted EPS on $15.18 billion in sales. INTC stock should move swiftly on the announcement since analysts are particularly optimistic in regard to the semiconductor of late.
December PCE will determine short-term equity direction
On Friday morning before the market opens, the US Bureau of Economic Analysis will release the Core PCE data for December. Similar to the Consumer Price Index (CPI), the PCE conveys a snapshot of the state of inflation in the US economy.
The biggest difference between the CPI and the PCE is that the Fed relies on it, rather prefers it, to the CPI when making decisions regarding interest rates. As it stands on Tuesday, consensus calls for annual Core PCE to drop to 3% from 3.2%. This would amount to further evidence that the Fed’s high rate environment continues to work toward reducing inflation.
The CPI earlier this month came in hot, and a hotter and higher than expected reading for the PCE will assuredly lead to an S&P 500 sell-off. November’s 0.1% monthly inflation reading is supposed to rise to 0.2% in December, but if it arrives flat with November, then the index will soar.
Before Friday’s PCE data, Wednesday supplies traders with the S&P Global Purchasing Managers Indices (PMIs). The Manufacturing PMI is supposed to print flat at 47.9 in contractionary territory, while the Services PMI is expected to drop from 51.4 to 51 but remain in expansionary territory.
The Preliminary GDP reading for Q4 arrives on Thursday and is supposed to reach 2% on an annual basis compared with 4.9% in Q3. December Durable Goods Orders the same day are forecast to grow 1.1% rather than 5.4% in the previous reading.
S&P 500 FAQs
What is the S&P 500?
The S&P 500 is a widely followed stock price index which measures the performance of 500 publicly owned companies, and is seen as a broad measure of the US stock market. Each company’s influence on the computation of the index is weighted based on market capitalization. This is calculated by multiplying the number of publicly traded shares of the company by the share price. The S&P 500 index has achieved impressive returns – $1.00 invested in 1970 would have yielded a return of almost $192.00 in 2022. The average annual return since its inception in 1957 has been 11.9%.
How are companies chosen to be included in the S&P 500?
Companies are selected by committee, unlike some other indexes where they are included based on set rules. Still, they must meet certain eligibility criteria, the most important of which is market capitalization, which must be greater than or equal to $12.7 billion. Other criteria include liquidity, domicile, public float, sector, financial viability, length of time publicly traded, and representation of the industries in the economy of the United States. The nine largest companies in the index account for 27.8% of the market capitalization of the index.
How can I trade the S&P 500?
There are a number of ways to trade the S&P 500. Most retail brokers and spread betting platforms allow traders to use Contracts for Difference (CFD) to place bets on the direction of the price. In addition, that can buy into Index, Mutual and Exchange Traded Funds (ETF) that track the price of the S&P 500. The most liquid of the ETFs is State Street Corporation’s SPY. The Chicago Mercantile Exchange (CME) offers futures contracts in the index and the Chicago Board of Options (CMOE) offers options as well as ETFs, inverse ETFs and leveraged ETFs.
What factors drive the S&P 500?
Many different factors drive the S&P 500 but mainly it is the aggregate performance of the component companies revealed in their quarterly and annual company earnings reports. US and global macroeconomic data also contributes as it impacts on investor sentiment, which if positive drives gains. The level of interest rates, set by the Federal Reserve (Fed), also influences the S&P 500 as it affects the cost of credit, on which many corporations are heavily reliant. Therefore, inflation can be a major driver as well as other metrics which impact the Fed decisions.
Earnings of the week
Monday, January 22 - Brown & Brown (BRO), United Airlines (UAL), Zions Bancorporation (ZION)
Tuesday, January 23 - Johnson & Johnson (JNJ), Procter & Gamble (PG), Netflix (NFLX), Verizon Communications (VZ), Texas Instruments (TXN), General Electric (GE), and Lockheed Martin (LMT).
Wednesday, January 24 - Tesla (TSLA), Abbott Laboratories (ABT), IBM (IBM), AT&T (T), General Dynamics (GD), Las Vegas Sands (LVS), CSX (CSX)
Thursday, January 25 - Visa (V), Intel (INTC), Comcast (CMCSA), Union Pacific (UNP), American Airlines Group (AAL), Southwest Airlines (LUV), Levi Strauss (LEVI) and Alaska Air Group (ALK).
Friday, January 26 - American Express (AXP), Colgate-Palmolive (CL), Norfolk Southern (NSC)
S&P 500 forecast
The S&P 500 index produced a new all-time high on Monday at 4,868, but the index plunged enough to produce a shooting star candlestick by the close of the session. That was bad since that formation typically portends the start of a bearish reversal. However, the index gained 0.29% on Tuesday, so it appears that the rally is still in place.
The S&P 500 is trading well above its 20-day Simple Moving Average (SMA). The only cause for worry is that once again the Relative Strength Index (RSI) is back in overbought territory. It seems that a worse outlook for Fed rate cuts hasn't dimished traders' January bullishness.
By the looks of it, the index may have a few more weeks of gains before consolidation sets in. Either way, Friday's Core PCE data will determine market movements for the end of the month.
S&P 500 daily chart
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Author
Clay Webster
FXStreet
Clay Webster grew up in the US outside Buffalo, New York and Lancaster, Pennsylvania. He began investing after college following the 2008 financial crisis.
