Week hinges on Wednesday’s CPI release, with Oracle earnings to follow Monday market close



  • S&P 500 pulled back 1.3% last week, trading as low as 4,430.
  • Wednesday sees the release of the US CPI for August.
  • Oracle reports earnings on Monday after the close.
  • US Retail Sales for August arrive on Thursday and are expected to add 0.2% MoM.
  • Adobe and Lennar report earnings on Thursday.

The S&P 500 lost 1.3% last week but attempted to rebound on Friday though the index lost much of its gains toward the end of its session. The market is more sanguine on Monday, and the S&P 500 advanced 0.4% at the open. Both the Dow Jones Industrial Average and the NASDAQ Composite are trading slightly above the S&P 500’s performance. 

Much of the buoyancy comes due to eagerness for Wednesday’s US Consumer Price Index (CPI) release for August. Many traders see this release as the nail in the coffin for any interest rate hikes from the Federal Reserve (Fed) for the rest of the year. A more certain end to monetary tightening means the market can look forward to cuts – even if they aren’t expected for at least six months. 

The earnings calendar is largely on vacation, but Oracle’s (ORCL) quarterly results come after the close on Monday

S&P 500 News: CPI, Retail Sales, Consumer Sentiment all on deck

Inflation has been steadily reducing since the summer of 2022, but now the United States is beginning to get within spitting distance of the Fed’s goal for 2% annual core inflation. July’s CPI had core reaching 4.7% YoY. With Wednesday giving us August’s figure, consensus has core inflation rising 0.2% from last month – the same as July’s result.

This gives the equity market hope that the August report won’t have enough surprises to alter the expectation that the Fed keeps interest rates unchanged at its September 20 meeting next week. The CME Group’s FedWatch Tool gives us a 93% chance that rates remain unchanged in the range of 5.25% to 5.5%. It also places the odds in the high 50% range that the central bank declines to raise rates at both the November and December meetings. This is why the equity market now views the rate hiking cycle completely as completely over despite Fed officials still remaining publicly open to a higher terminal rate.

Consensus for the monthly headline CPI has risen from 0.2% in July to 0.5% in August due to the rising price of gasoline. As long as the core monthly CPI is not higher than 0.2%, then the stock market should be happy. Otherwise, any deviation higher than consensus will likely cause a steep drop in the S&P 500 index.

Then on Thursday US Retail Sales for August are expected to deliver a 0.2% MoM growth rate. This is much lower than the 0.7% seen in July, but the market approves of slower growth since it means that inflation is less likely to perk up.

Friday gives us the preliminary Michigan Consumer Sentiment Index for September. Analysts are shooting for 69.5, the same reading as August but lower than July’s 71.6. A higher reading tends to be bullish for the US Dollar and bodes well for the strength of the US economy.

Oracle, Adobe and Lennar headline week’s earnings releases

Legacy tech giant Oracle kicks off the week with its fiscal first quarter 2024 earnings coming after Monday’s close. Consensus on Larry Ellison’s firm is split down the middle. Of the 21 analysts covering the stock, 11 cut their earnings per share (EPS) estimate in the last three months, while 10 raised their forecasts.

Consensus comes at $1.15 in adjusted EPS on revenue of $12.47 billion. This contrasts with the year-ago result of $1.03 per share on $11.45 billion in sales.

Then the week is mostly uneventful until Thursday when Adobe (ADBE) and Lennar (LEN) both report. Adobe management should give more details about its acquisition of Figma, another digital design software company. Analyst consensus calls for $3.97 in adjusted EPS on revenue of $4.87 billion.

Lennar will give the equity market a chance to assess the US housing market. Lennar is one of the largest homebuilders in the US, and shareholders have to wonder how badly mortgage rates topping 8% are going to put a lid on new home sales. The consensus forecast calls for $3.50 in adjusted EPS on revenue of $8.52 billion.

S&P 500 FAQs

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%.

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.

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.

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, September 11 – Oracle (ORCL)

Wednesday, September 13 – Cracker Barrel Old Country Store (CBRL), REV Group (REVG)

Thursday, September 14 – Adobe (ADBE), Lennar (LEN)

What they said about the market – Goldman Sachs

The ladies and gents over at Goldman Sachs seem to be the cheeriest of the bunch on Wall Street these days. Last Friday, they released a report stating that they see only a 15% chance of recession over the next twelve months. This is well below peers like Wells Fargo and Barclays who appear much more worried about global growth prospects. Goldman’s report said China should continue to weigh on the global economy but that it will still grow by a respectable 2.6% in 2023. 

“In the US, we expect solidly positive real GDP growth of 2.1% this year on a nQ4/Q4 basis, reflecting a reduced drag from monetary tightening and continued strength in real disposable income growth.”

S&P 500 forecast

There are two main levels to watch this week. The first is 4,430. That is where the S&P 500 index bounced off last Thursday. A break below this level will send bulls running for cover. This is because the nearest support is in the 4,328 to 4,335 thicket, about 100 points below.

The second level to watch is the high of 4,541 from September 1. A break above there will cause bulls to rush in and join the move to the resistance band that surrounds 4,600.

Monday’s open places the S&P 500 index just below the 9-day Simple Moving Average (SMA). Breaking above that SMA will also give traders confidence that the index is moving toward a positive week. 

S&P 500 daily chart


Source link

Leave a Reply

Your email address will not be published. Required fields are marked *