S&P 500 Forecast: Index closes down slightly on low-volatility Monday ahead of CPI

• Standard & Poor’s 500 index gained 1.31% last week.
• S&P 500 index made new range high last Friday, ending three-month downtrend.
• Big data week ahead with October CPI, PPI inflation, Housing Starts, Retail Sales.
• Lower headline inflation expected to hoist equity prices this week, extending current rally.
• Taiwan Semiconductor, Walmart, Cisco, Target, Home Depot, Alibaba report earnings this week.

The S&P 500 index closed down 0.08% on Monday in a session that was marked by subdued interest from traders. The Dow Jones index closed up 0.16%, while the NASDAQ Composite lost 0.22%.

Despite Monday’s pullback, the week looks bright for investors after the index broke to a new higher high last Friday. This event officially ends the three-month downtrend that began at the end of July on a technical basis.

The index should hinge this week on a wide swath of earnings releases and economic indicators that are scheduled for delivery. First and foremost will be Tuesday’s US Consumer Price Index (CPI) for October. Economists expect headline inflation to recede from September’s figures.

The Producer Price Index (PPI) follows on Wednesday, providing a view of corporate inflation, and US Retails Sales should also give the market an idea of how healthy the American consumer is heading into the big-spending holiday season.

The Home Depot (HD), Target (TGT) and Walmart (WMT) earnings results this week should offer the market an even better peek at the strength of consumer spending and how these nationwide chain stores are dealing with higher supplier prices.

Later in the week, the US Congress’ failure to pass a new spending bill could lead to a federal government shutdown, but the US House of Representatives is set to vote on a continuing resolution early in the week. The market is largely sanguine at the moment that an agreement will be made before the deadline, which comes as soon as Friday.

S&P 500 News: Earnings to focus on retail, China and tech

Tyson Foods (TSN) started the week on a high note for the S&P 500 by releasing a profit beat before the opening bell. The beaten-down food giant reported fiscal fourth-quarter adjusted earnings per share (EPS) of $0.37 on $13.35 billion in sales. Like so many companies this quarter, Tyson beat consensus for earnings but missed on the sales expectation. Tyson beat Wall Street earnings consensus by 12 cents but missed the revenue consensus by nearly $400 million.

The Home Depot is the big kahuna on Tuesday. The DIY home improvement box store is expected to deliver a downturn in results from a year ago as middle-income customers see their covid-era savings dissolve. Analysts are mixed on the third quarter, but the consensus is for $3.76 in GAAP EPS on the back of $37.6 billion in sales. A year ago, The Home Depot reported $4.24 in EPS on $38.87 billion in revenue.

Target and Walmart quarterly results follow The Home Depot on Wednesday and Thursday. Wall Street analysts put the consensus for Target a tad lower from a year ago and have unanimously reduced their earnings forecasts for the quarter. Still, they expect $1.48 in GAAP EPS on $25.2 billion in revenue.

Walmart is forecast to earn $1.51 in GAAP EPS on $158.5 billion in sales. Unlike these other retailers in the week’s cohort, sales are projected to rise $7 billion above last year’s result.

China makes a major showing this week with Alibaba (BABA), JD.com (JD) and XPeng (XPEV) on the docket. On Wednesday, JD.com is expected to earn $0.81 in adjusted EPS on just under $34 billion in sales for the ecommerce firm. Electric vehicle (EV) upstart XPeng is projected to lose $-0.46 in adjusted EPS on $1.18 billion in sales as the Chinese economy deals with a broad downturn and general malaise, especially in the EV space where BYD (BYDDY) and Tesla (TSLA) already dominate and have reduced prices.

Alibaba reports on Thursday, and analysts think the Chinese tech and ecommerce conglomerate will upload a YoY increase on the top and bottom lines but a pullback from the most recent quarter’s results. US investors may put much of their hopes in Alibaba’s cloud segment, but consensus still has Alibaba earning $2.07 in adjusted EPS on revenue of $30.8 billion.

Tower Semiconductor (TSEM), Cisco (CSCO), Sea Limited (SE) and Applied Materials (AMAT) earnings round out the week in the tech and digital space.

Headline inflation expected to fall alongside consumer spending

The October CPI is absolutely the most-watched event of the week on the economic data side of things. It gets released at 13:30 GMT on Tuesday. Economists are forecasting what stock market traders want to hear – a major decline in headline consumer inflation. Consensus has the annual figure arriving at 3.3% and the monthly figure rising 0.1%. This compares to 3.7% and 0.4%, respectively, for September’s release.

The more important core CPI figures are slated to remain unchanged, however, at 0.3% monthly and 4.1% annually. A lower reading on either the core or headline inflation figures should lead to higher stock market prices, while a higher reading will have the opposite, negative effect as the market will assume that the Federal Reserve might hike interest rates higher to combat inflation.

A mixed bag on the CPI will force the market to wait on Wednesday’s PPI release, which also has consensus for the core annualized reading of 2.7% exactly in line with the previous month’s print.

The bad news for retail and other consumer stocks is that the general forecast for October’s US Retail Sales – arriving simultaneously with the PPI data at 13:30 GMT on Wednesday – is for a MoM decline of 0.3%. This comes after September’s monthly 0.7% gain and several months in a row of readings that were positive.

Likewise, both US Housing Starts and Building Permits data for October, released on Friday, are expected to show a monthly decline compared with September.