S&P 500 plays spin the bottle with support, ends higher

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Investors heads were spinning around on Monday, as after a series of intraday swings, which saw the S&P 500 hit fresh lows back to May 2021, a last hour rally propelled the benchmark index to a positive close.

Indeed, around 1500 EDT, the SPX hit a low of 4,062.51, at which time it nearly kissed its May 2021 lows at 4,061.41 and 4,056.88, as well as its rising 100-week moving average, which now resides around 4,041. The SPX then surged more than 2% into the close, to finish green on the day.

With the topsy-turvy session, both the CBOE S&P 500 volatility index and Nasdaq 100 volatility index failed to surpass their early 2022 intraday highs, despite the fresh intraday lows in both the SPX and Nasdaq 100. Both volatility measures are poised to settle down on the day.

It now remains to be seen if the market can build on its upward reversal. Although with the Federal Reserve meeting this week, where policymakers are widely expected to raise interest rates, cautious trade may take hold at least until the results of the meeting are released on Wednesday at 1400 EDT.

Meanwhile, the U.S. 10-Year Treasury yield hit 3.01%, or a fresh high back to December 2018.

Here is Monday’s closing snapshot:

(Terence Gabriel)


Savita Subramanian, equity & quant strategist for BofA Securities, wrote in a note Monday that while consensus U.S. earnings growth estimates for 2022 are up since April 1, the gain has been “entirely driven by energy.”

She said both the firm’s guidance ratio and earnings revision ratio have fallen to the lowest since the second quarter of 2020, and added that BofA sees “downside risks to consensus EPS.”

“History shows analysts typically start the year too optimistic and cut estimates throughout the year. Since 2001, actual EPS came in 5% below where consensus stood at the beginning of the year on average (-1% excluding 2008 and 2020),” she noted.

“Consensus EPS for both 2022 and 2023 continued to climb higher YTD (+3% and 2%, respectively) driven by higher Energy earnings, but we expect downside risks given weak guidance and slowing macro conditions.”

According to Refinitiv data, second-quarter S&P 500 earnings growth is estimated at 5.6% as of Monday, down from 6.8% at the start of April.

Profit growth for all of 2022 is estimated at 8.8%, the same as the forecast at the start of April, the data showed.

However, the 2022 S&P 500 energy sector earnings growth forecast has gone up to 86.2% as of Monday, from 64.9% at the start of April, thanks to sharply higher oil prices, per Refinitiv data.

Over that same period, the 2022 S&P 500 technology sector earnings growth forecast has gone down to 8.8% from 9.2%.

Profit growth for all of 2023 is estimated at 9.9%, up from 9.8% at the start of April, Refinitiv data showed.

(Caroline Valetkevitch)


In terms of uses of cash, Goldman Sachs (GS) is forecasting increases for S&P 500 buybacks, dividends, and capex for 2022.

In his latest weekly kickstart, David Kostin, chief U.S. equity strategist, says that amid slowing growth, buybacks and dividends warrant special attention.

According to GS, S&P 500 buybacks should grow by 12% year-over-year in 2022 to a level of $1 trillion, and will remain the largest source of demand for U.S. equities.

Kostin notes that tech and communication services were responsible for a combined 43% of S&P 500 repurchases in 2021, and that Apple and Alphabet recently authorized $90 billion and $70 billion buybacks.

As for dividends, Kostin is raising his 2022 growth forecast to 10%. Additionally, GS is calling for S&P 500 capex spending to increase 9% year-over-year (from 10% previously), while R&D spending should grow 9%.

Given macro uncertainties, Kostin says that cash M&A activities will likely be constrained this year.

Kostin highlights that stocks that return cash to shareholders “typically outperform as economic growth decelerates,” and given expected rate hikes, the Fed will engineer a slowdown in economic activity.

“When growth slows, a sector-neutral portfolio of stocks spending the most on buybacks and dividends as a share of market cap typically outperforms stocks spending on capex and R&D.”

(Terence Gabriel)


With the S&P 500 falling more than 3% last week to cement its biggest drop for the first four months of the year since 1939, Morgan Stanley’s equity strategist believes the benchmark index has minimum downside to 3,800 in the near-term.

Mike Wilson notes the market breadth last week, which showed the cumulative advance/decline line hitting a new low for the bear market, suggested the drop was even worse than the price action indicated and the primary reason for the broad selling was mounting signs growth is slowing faster than most investors believe.

Earnings estimates over the next 12 months remain too high, said Wilson, even with earnings again coming in above expectations for the first quarter as the quality of the earnings is crumbling, with company managements growing more cautious about future growth prospects.

Wilson notes the S&P 500 real earnings yield is the most negative it has been since the 1950s and even with inflation at its highest level in 40 years and rates almost doubling over the past two months, index valuations remain at historically high levels when they should be leading to lower valuations.

The real earnings yield tends to lead real returns for the S&P 500 by about six months, and while the relationship is not airtight, Wilson notes “it has held true during the 2001 and 2008 cycle with the real earnings yield leading real returns lower.

From a technical view, Wilson thinks the S&P has minimum downside to 3,800 in the near-term, marking 16X the forward 12-month bottoms up earnings per share, with “true” technical support at the 200-week moving average, or 3,460.

Still, Wilson notes the market is very oversold and “any good news could lead to a vicious bear market rally,” but he still believes the current bear market is far from over.

(Chuck Mikolajczak)


Market participants began Fed week with a case of the Mondays, as data showed U.S. Factory activity has downshifted and switched to the slow lane.

The Institute for Supply Management’s (ISM) purchasing managers’ index (PMI) came in at 55.4, a deceleration from the previous month and undershooting consensus by 2.2 points.

A PMI number above 50 signifies increased monthly activity.

The new orders, employment and inventories components all lost ground, but then so did the closely watched prices paid element, suggesting that the spike in input costs might have peaked.

“The U.S. manufacturing sector remains in a demand-driven, supply chain-constrained environment,” writes Timothy Fiore, chair of ISM’s manufacturing business survey committee. “In April, progress slowed in solving labor shortage problems at all tiers of the supply chain.”

Fiore adds that while “April saw a slight easing of prices expansion, but instability in global energy markets continues.”

And yet, “sentiment remained strongly optimistic regarding demand.”

This partly cloudy outlook was echoed in the comments of survey participants, who countered upbeat phrases like “improvements in the supply chain” and “new order entries are still very strong” and “business is still very robust,” with downbeat qualifiers such as “inflation is out of control,” and “logistics issues have (not) yet improved.”

But global information firm HIS Markit offered a contrarian view with its final take on April PMI, delivering a warmer reading of 59.2 and marking a modest acceleration from March.

“Demand from consumers and businesses is proving encouragingly robust despite severe inflationary pressures, which intensified further during April,” says Chris Williamson chief business economist at S&P Global.

ISM and Markit PMI differ in the weight they allot to their various components (i.e., new orders, employment).

The graphic below shows the extent to which these dueling PMIs agree (or don’t):

Separately, expenditures on U.S. construction projects inched up by a paltry 0.1% in March, marking an unexpected deceleration.

Analysts expected the report from the Commerce Department to show a 0.2 percentage point acceleration from the more robust 0.5% growth seen in February.

Spending on residential projects once again did the heavy lifting, rising 1% as homebuilders continue to scramble to replace evaporating inventories.

But a 1.9% drop in commercial project expenditures held gains in check.

“Overall, momentum in residential and nonresidential remained positive in Q1,” said Rubeela Farooqi, chief U.S. economist at High Frequency Economics. “But public construction spending is subdued.”

Wall Street is last mixed as investors wrestle with a desire to bargain hunt against expected interest rate hikes from the Fed.

(Stephen Culp)


Major U.S. stock indexes hovering around the unchanged mark on Monday after closing out a rough April, with investor focus on the Federal Reserve meeting this week where policymakers are widely expected to raise interest rates.

Of note, shortly after the open, the S&P 500 index dipped to 4,105.06, putting it below its February 24 intraday low of 4,114.65, and at its lowest level since May 19, 2021.

The benchmark index has since clawed its way back up to the 4,120 area, but is still red on the day.

Most major S&P 500 sectors are down with real estate the weakest group. Communication services leads gainers.

Meanwhile, the U.S 10-Year Treasury yield has hit 2.992%, which is a fresh high back to December 2018. This after the yield ended April above its 200-month moving average for the first time since March 1989, as well as a resistance line from September 1982.

Here is an early trade snapshot:

(Terence Gabriel)


The Dow Jones Industrial Average ended Friday down five-straight weeks, and just over 10% from its early-January record close. Thus, just as the Fed appears set to deliver a 50 bps rate-hike on Wednesday, the blue-chip average may be getting stretched to the downside:

The DJI last fell five-weeks in a row from early-February to early-March of this year. The DJI also fell five-straight weeks in June-July 2004.

The Dow has fallen more than five-straight weeks only four times over the past two decades. Those four streaks were all six weeks: April-May 2019, May-June 2011, August-October 2002, and May-June 2002.

Thus, over the past 20 years, it has been relatively rare for the DJI to decline 5-6 straight weeks.

Meanwhile, the Dow’s weekly RSI ended Friday at 32.79, or just above the 30.00 oversold threshold, as well as its 28.786 early-March trough. The March reading was the most oversold reading on a weekly basis since March 2020, which immediately led to a snapback of more than 7% over the next three weeks.

In terms of nearby DJI support, the 23.6% Fibonacci retracement of the entire March 2020-January 2022 advance is at 32,530.25. The late-February low was at 32,272.64.

Additionally, the rising 100-week moving average ended Friday at 32,254.81. The Dow has not registered a weekly close below this moving average since it was reclaimed on a weekly closing basis in July 2020.

(Terence Gabriel)


(Terence Gabriel is a Reuters market analyst. The views expressed are his own)