• S&P 500 recovers after losing 2.27% last week, its worst performance since early March.
  • S&P 500 index broke below the 21-day moving average on Friday.
  • Disney, Eli Lilly, Alibaba, UPS and Palantir release quarterly earnings this week.
  • July CPI will be reported on Thursday, analysts expect 4.7% YoY core inflation.
  • US Producer Price Index comes out on Friday morning.

The S&P 500 is recovering after its worst performance in about five months last week. The index lost 2.27% – the largest pullback since the week of March 6. The culprit was Fitch's downgrade of the US government’s credit rating from AAA to AA+, based on governance issues and a general disinterest from the political class in tackling the federal deficit.

This week will see the market getting another look at the inflation picture. The US Consumer Price Index (CPI) for July arrives on Thursday morning; and the Producer Price Index, the following day. Analysts expect prices to continue disinflating, so an uptick in inflationary pressure from either of these data sets could send the index lower still. 

At Monday’s open, the market seems more optimistic. The S&P 500 advanced 0.5%, while the NASDAQ Composite gained 0.12% and the Dow Jones Industrial Average tacked on 0.8%.

S&P 500 News: Inflation data to tip Fed’s hand for September

The US Bureau of Labor Statistics will release July’s Consumer Price Index data one hour before the market opens on Thursday. Analysts expect the all-important core inflation reading to come in at 4.7% YoY. This compares to June’s reading of 4.8%. July’s monthly core CPI is expected to grow at 0.2%, in line with June’s rate.

Headline CPI, which contains the more volatile food and energy prices, is expected to tick higher from June’s 3% YoY rate to 3.3% in July. This is because Oil prices have been making steady headway since early July. In the past month, West Texas Intermediate (WTI) has climbed from the low $70s to the low $80s, adding costs to producers and suppliers throughout the US economy. 

On Friday comes Producer Price Index (PPI) data for July. Wall Street consensus expects the core data to rise 2.3% YoY, down from 2.4% in June.

The inflation data is important, because institutional investors are worried about sticky inflation forcing the Federal Reserve to raise interest rates at its September meeting. Right now, the market feels confident that the central bank will keep rates flat. In fact, the CME FedWatch Tool gives an 84.5% chance the central bank keeps rates flat.

Higher rates would spook the equity market and assuredly lead to a sell-off in the S&P 500, and the only way that happens is if the inflation data on Thursday and Friday come in hot.

Disney, UPS, Eli Lilly, Alibaba offer biggest earnings chatter

The second-quarter earnings season is coming to an end, but several quite important companies are yet to report. Chief among them are the beleagured Alibaba (BABA), which has been trading at a depressed valuation for more than two years now. Then there is United Parcel Service (UPS), which has just completed a new deal with its carrier union but has been losing overall shipping market share for several years.

Eli Lilly (LLY), which has been benefitting from the American consumers’ newfound love of weightloss drugs, and Palantir Technologies (PLTR) should both offer investors a decidedly upbeat outlook.

Palantir will report earnings after the market closes on Monday. Wall Street is expecting $0.05 in adjusted earnings per share (EPS) on revenue of $533.9 million. 

On Tuesday, Eli Lilly is expected to unleash adjusted EPS of $2.00 on revenue of $7.61 billion. At the same time, UPS has a consensus for $2.50 in GAAP EPS on revenue of $23.12 billion in sales. Analysts have heavily revised expectations for the quarter much lower over the past three months.

Two more large downtrodden stocks will bring in the rear of the week’s results. First, on Wednesday, Disney (DIS) – now back under the care of Bob Iger – is expected to report adjusted EPS of $0.99 but for broader GAAP EPS just $0.05. Revenue is expected to arrive at $22.54 billion. Then Alibaba results come before the market open on Thursday. Wall Street expects $2.02 in adjusted EPS on $31.48 billion. 


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.

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