S&P 500 SPX Week Ahead: Bears hibernate as records keep getting smashed, earnings season awaits


  • Equity markets continue to set new records as the Nasdaq plays catch up.
  • Fundamentals are backing bulls as Fed doves dampen inflation concerns.
  • Earnings week ahead will likely add more fuel to the fire.

Stay up to speed with hot stocks' news!


Another week another record-shattering performance from US equities. All sectors remain strong but mega-cap tech and the Nasdaq, in general, outperform the border market. This is a natural breakout as these sectors had lagged for most of February and March.

Inflation concerns were put to one side for the last few weeks as the ten-year yields calmed and Fed officials spoke glowingly about growth and employment prospects. Investors have also been resetting their pain tolerance for inflation and have discovered a little can not hurt too much.

Retail investor flows also seem to be continuing to diminish. This appears correlated to the re-opening of the economy as young retail traders turn away from their screens. Call option volume has been steadily diminishing, which has been a steady feature of retail traders. Volatility across the meme stock universe also continues to fall and the VIX briefly dipped below 17 earlier on Friday.

The Nasdaq topped the weekly performers with a gain of 3.12%, the Dow was up 1.96% for the week, while the S&P 500 was up 2.7%. 

Backing the strong equity performance is data from Bank of America showing that equity fund inflows in the last quarter, with a few since November, have been higher than the previous 12 years combined. Wow, now let's think about that for a second. Twelve years is a long time and in five months we have surpassed the previous total for 144 months. 

This does set bubble alarm bells ringing. 

However, the previous 12 years included the biggest financial meltdown in history! What we have seen since the financial crash are incredibly expansive policies with massive central bank stimulus, money printing, and zero interest rates. The pandemic has further added with more stimulus. Basically what we are seeing is huge stimulus by central banks being pumped into global stock markets as yields and alternatives are virtually zero.

Corporates have reacted accordingly and borrowed and restructured their debt and balance sheets to take advantage of the free cash and as a result, have been able to produce strong outcomes. 

Next week is due to see further evidence of this as we get Q1 2021 earnings season right off the blocks. Earnings growth is expected to be strong. Refinitiv data shows how impressively expectations have grown over the last six months as the economic backdrop improves. 

This chart is showing expectations for just Q1 2021. Since October 2020, expectations for the coming earnings season have almost doubled, from 12% earnings growth to nearly 22%. 

Interestingly enough, Refinitiv notes that Industrials have seen the largest reduction in expected earnings growth, but can President Biden's infrastructure plan help turn the sector around?

Bank stocks lead the earnings season kick-off so keep an eye on the Financial sector XLF versus the rest! 

2021-04-14    Before Market Open    Goldman Sachs Group

2021-04-14    Before Market Open    Wells Fargo

2021-04-14    Before Market Open    Bed Bath & Beyond

2021-04-15    Before Market Open    Citigroup

2021-04-15    Before Market Open    PepsiCo

2021-04-15    Before Market Open    BlackRock

2021-04-15    Before Market Open    UnitedHealth Group

2021-04-15    Before Market Open    Delta Air Lines

2021-04-15    After Market Close       Alcoa

2021-04-15    Before Market Open    Bank of America

2021-04-15    After Market Close       PPG Industries

2021-04-15    Before Market Open    Rite Aid

2021-04-15    Before Market Open    US Bancorp

2021-04-16    Before Market Open    Ally Financial

2021-04-16    Before Market Open    Bank of New York Mellon

2021-04-16    Before Market Open    Morgan Stanley

2021-04-16    Before Market Open    State Street

2021-04-16    Before Market Open    Kansas City Southern

2021-04-16    Before Market Open    Citizens Financial Group

2021-04-16    Before Market Open    PNC Financial Services Gr

Source: Benzinga Pro

 

Expectations are high, markets are bullish so it will need a strong outperformance to perhaps keep the bullish show on the road. Either way we have plenty to keep us occupied.

Monday sees another Fed member take to the pulpit, or a virtual one perhaps as Boston Fed President Rosengren speaks at 1300 EST. 

Tuesday will see some fun as inflation will creep back into the consciousness with the release of US CPI. Friday’s PPI showed just how hot things could get as PPI was well ahead of priors and expectations. Monthly CPI is expected to grow by 0.5% and annual by 2.5%.

Wednesday is quiet on the economic front apart from the Beige book. However, we do get results from JPMorgan and Goldman.

Thursday is as usual Jobless Claims day. Also hitting the tape is Philly Fed expected to be 43 and Retail Sales for March. Bank of America, Pepsi, Delta Air Lines, and Citigroup top the bill earnings-wise.

Friday sees Housing Starts data for March and earnings from Morgan Stanley.

S&P 500 technical analysis

The trend is your friend and it certainly is if you are long! This week has seen inflation concerns take a back seat and that paved the way for continued records across the main indices. The Fed continues to act and talk doveishly and President Biden continues to come up with stimulus plans. This time it is the turn of infrastructure. The S&P 500 broke sharply higher and extended into the close on Friday. We are trading comfortably above 9 and 21 day moving averages. At record highs, there is no resistance in sight. The pivot and key to the maintenance of the bullish trend is 3983 where we struggled before blasting through. MACD remains bullish but widening. RSI is close to overbought but RSI is not good at signaling overbought conditions in indices as they can trend higher for years. RSI is much more beneficial at showing oversold conditions in relation to equity indices. Earnings season will provide more fundamental data to back up the technical picture next week. But the trend is clearly bullish and it will take a lot to change this.

SPX

 

The author is long VIAC and DISCA. The author has no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

This article is for information purposes only. The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice. It is important to perform your own research before making any investment and take independent advice from a registered investment advisor. 

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to accuracy, completeness, or the suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. The author will not be held responsible for information that is found at the end of links posted on this page. 

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.

Feed news

Are you new to trading or have been trading for a while and you feel stuck?

Try with us!
Become Premium!
   

Latest Forex News


Latest Forex News

Editors’ Picks

EUR/USD Price Analysis: Bears hit target, eyes on upside

As per the prior analysis, 'EUR/USD Price Analysis: Bears are lurking with eyes on 61.8% Fibo target', the market has melted to the target and now the focus is on the upside should the support structure hold. 

EUR/USD News

GBP/USD Price Analysis: Poised for further downside towards 1.4000

GBP/USD bears lick their wounds near 1.4060, up 0.08% intraday, during Thursday’s Asian session. The cable pair dropped the most in May the previous day on broad US dollar strength.

 

GBP/USD News

NZD/USD Price Analysis: Bears challenge multi-day lows near 0.7120

The NZD/USD forms consolidated moves in the early Asian session, having witnessed quite heavy losses in the late New York session. The pair booked nearly a 130 pips movement before closing the session on a lower note.

NZD/USD News

BTC may drop to $34,000, taking the rest of the market with it

Bitcoin price defining a bearish top formation after weeks of indecision. Ethereum price blitzes bears with steady price momentum. Ripple price fails pattern test, poised for further losses.

More Crypto News

Inflation and the dollar: Is the connection as direct as it seems?

US inflation soared in April and so did market volatility. Treasury rates rose, the dollar followed and equities dropped for a second day.  The Fed insists prices increases are temporary but behind the pandemic base effect commodity prices are sharply higher and wages are rising. 

Read more

Forex MAJORS

Cryptocurrencies

Signatures