S&P 500 Forecast: Earnings to furnish index direction this week

The S&P 500 barely moved last week, so it is up to the companies reporting this week to steer the index that currently lacks direction. Tesla's (TSLA) Q1 call last week left the impression that margins would keep tightening at the automaker amid what CEO Elon Musk thinks is a global recession just getting started. That sentiment brought the market lower, and the S&P 500 ended the week down by 10 basis points. Coca-Cola (KO) started off the week on a high note with a solid beat released before the opening bell on Monday.

The Treasury market does not appear to believe Musk's pessimism, however, as they crowd into shorting government bonds. From Bloomberg: "Leveraged investors boosted their net shorts on 10-year Treasury futures to a record 1.29 million contracts as of April 18, data from the Commodity Futures Trading Commission show. It was the fifth straight week that net shorts had increased." Shorting Treasuries means you expect higher yields ahead – the exact opposite behavior in a market expecting a recession.

At the time of writing, NASDAQ 100 futures and S&P 500 (SPX) futures are mostly flat.

S&P 500 news: Coca-Cola starts off earnings week with win

Coca-Cola (KO) stock sailed up 1.8% following Monday morning earnings for the first quarter that showed the soft drink mainstay growing organic sales handsomely. Oragnic sales rose 12%, well above the 9.6% expected, due to much better results in EMEA and Latin America. Coca-Cola beat Wall Street forecasts by 4.6% on EPS and 2% on revenue.

This week is big for big tech primarily though. Microsoft (MSFT), Meta Platforms (META), Amazon (AMZN) and Alphabet (GOOGL) also report this week.

Afterhours on Tuesday, Microsoft is expected to post EPS of $2.23 on revenue of $51.04 billion. At the same time Wall Street expects Alphabet to post $1.07 per share on $68.83 billion. Late Wednesday, consensus for Meta Platforms, owner of Facebook and Instagram, is $1.95 per share on $27.66 billion. Last but not least, Amazon on Thursday is forecast to produce EPS of $0.22 on revenue of $124.55 billion.

That is just big tech however. McDonald's (MCD), Visa (V), ExxonMobil (XOM) and First Republic Bank (FRC) will also be sure to turn heads as well. Reporting late Monday, First Republic could very well be a major market tailwind in the case of a good earnings report as it would mean March's banking turmoil is one less worry.

Housing and inflation data remain clear focus

Tuesday sees a flurry of housing data released. The market expects the Federal Housing Finance Agency's Housing Price Index  and the S&P/Case-Shiller Home Price Index to show reduced growth on prices in February. Growth in new home sales for March are also expected to decline nationally.

Most of Wall Street may be somewhat subdued, however, ahead of Friday's Personal Consumption Expenditures (PCE) report for March. This inflation report is more important than the Consumer Price Index (CPI) for the Fed's interest rate decisions. Wall Street analyst consensus calls for 0.3% core PCE MoM growth and 4.5% growth YoY.

Earnings of the week

Monday, April 24 - Coca-Cola (KO), Whirlpool (WHR) and First Republic Bank (FRC)

Tuesday, April 25 - Microsoft (MSFT), Alphabet (GOOGL), UBS (UBS), Visa (V), PepsiCo (PEP), McDonald's (MCD), Verizon (VZ), General Electric (GE) 

Wednesday, April 26 - Meta Platforms (META), Boeing (BA)

Thursday, April 27 - Amazon (AMZN), Mastercard (MA), Eli Lilly (LLY), Merck (MRK), Caterpillar (CAT), AbbVie (ABBV)

Friday, April 28 - Exxon Mobil (XOM), Chevron (CVX) and Colgate-Palmolive (CL)

S&P 500 quote

Damien McColough, head of fixed-income research at Westpac Banking Corp. in Sydney, told Bloomberg in regard to heavy shorting of US Treasuries:

"Hedge funds may be thinking that inflation will be stickier than many in the market are currently expecting. [...]On the face of it, this big short doesn’t reflect the view that there will be a near-term recession."

S&P 500 technical analysis

The S&P 500 index is right back where it started last week – still stuck within the 4,100 to 4,200 resistance window. A break above 4,200, which has not been done since August 2022, would be a major bullish signal. – about nine months ago. As we said last week, only major earnings beats, this time from big tech, would do the trick. A break of 4,200 would have bulls ushering in a weekslong push for 4,325 – the August 2022 high.

A sharp cut back on inflation from Friday's PCE data could also help the S&P 500 since the market would see this as a sign that future rate hikes are unnecessary. Higher inflation might lead to a serious sell-off however. The index has some minor support at 4,050, but much stronger support at 3,800 from December.

S&P 500 weekly chart