S&P 500 News: Index closes lower on Monday ahead of Thursday's PCE inflation

Standard & Poor’s 500 index has advanced 10.7% over the previous four weeks but opened lower on Monday.
Market offers plenty of earnings releases this week, including Snowflake, Crowdstrike, SalesForce, Kroger and Dollar Tree.
New Homes Sales Change for October came in at -5.6%.
US Treasury yields are receding on Monday across the yield curve.
Thursday’s October PCE report on inflation is the most-watched data release of the week.

The S&P 500 index closed down 0.2% on Monday, the worst performing of the three major US indices. The S&P 500 slide follows four weeks of gains.

The index spent most of the day in negative territory, while the NASDAQ Composite lost its initial advance to close down 0.07%. The Dow Jones slipped 0.16% on the day as well. The 4,560 level continues to work as stubborn resistance for the S&P 500 for the third straight session.

The index has gained 10.7% over the course of these previous four weeks, and last week it proved to be the fastest reversal out of a correction since the 1970s, according to data from Dow Jones.

While US Treasury yields wound lower across the yield curve to start the week, New Homes Sales tumbled in October to 679K, down 5.6% from the previous month’s 719K print. Consensus was 725K. This may be part of the reason for stock market reticence on Monday.

Good news arrived on Shopify’s (SHOP) data for Black Friday shopping, but much of the market is focused on Thursday’s Personal Consumption Expenditures (PCE) data, which has traders expecting a further reduction in the growth of inflation.

S&P 500 News: Earnings this week showcase enterprise software and retail

Salesforce (CRM) is the biggest earnings focal point for S&P 500 components this week. Released in Wednesday’s post-market, the enterprise software company has seen unanimity among analysts in raising earnings per share (EPS) forecasts for the fiscal third-quarter 2024 results. Consensus sees the company founded and still run by CEO Marc Benioff earning $2.06 in adjusted EPS on $8.72 billion. Profits are expected to decline slightly from the most recent quarter’s $2.12 adjusted EPS, but sales are supposed to climb 1.4% from fiscal Q2.

Zscaler (ZS), Crowdstrike (CRWD) and Snowflake (SNOW) – appearing on Monday, Tuesday, and Wednesday, respectively – will be the most-watched releases in the tech space, but none of the three are components of the S&P 500.

Instead, Intuit (INTU), Hormel Foods (HRL), Kroger (KR) and Dollar Tree (DLTR) will be watched by index traders.

Intuit is expected to report $1.98 in adjusted EPS on $2.88 billion in sales on Tuesday.

Analysts are quite pessimistic on Hormel Foods’ release on Wednesday. The owner of dozens of supermarket brands is expected to earn $0.45 in adjusted EPS on $3.27 billion in sales, but it has missed revenue consensus for four consecutive quarters.

Dollar Tree is another retail-focused company with results out Wednesday. The downscale retailer is expected to witness a quarterly rise in results to $1.01 in EPS on $7.43 billion, but most analysts are skeptical of the company. The DLTR stock price is down nearly 17% year to date.

On Thursday, Kroger will add to the week’s retail survey. The market will mostly want to hear about how the Albertsons acquisition is panning out, but analysts take a dim view as the grocery chain has missed the mark on revenue for three quarters running.

Thursday’s PCE is expected to show more good news on inflation front

The October PCE data on Thursday will likely move the market, which desires further confirmation that inflation is indeed stalling out. Any reading above consensus could drive a market sell-off as well. Reduced inflation readings will tell the market that Fed rate cuts could be moved up on next year’s calendar. Currently, the market expects the first cut to arrive at the May 2024 meeting.

Monday’s consensus, which sometimes changes closer to the release, calls for monthly Core PCE to fall from 0.3% to 0.2%. The annual Core PCE consensus is expected to fall from 3.7% to 3.5%.

Headline PCE, which includes food and energy prices, is expected to drop from 0.4% in the previous month to 0.1% in October. Annual headline PCE is forecast to decline from 3.4% last month to 3%. Core PCE is much more important to Fed officials though.

Dow Jones FAQs

What is the Dow Jones?

The Dow Jones Industrial Average, one of the oldest stock market indices in the world, is compiled of the 30 most traded stocks in the US. The index is price-weighted rather than weighted by capitalization. It is calculated by summing the prices of the constituent stocks and dividing them by a factor, currently 0.152. The index was founded by Charles Dow, who also founded the Wall Street Journal. In later years it has been criticized for not being broadly representative enough because it only tracks 30 conglomerates, unlike broader indices such as the S&P 500.

What factors impact the Dow Jones Industrial Average?

Many different factors drive the Dow Jones Industrial Average (DJIA). The aggregate performance of the component companies revealed in quarterly company earnings reports is the main one. US and global macroeconomic data also contributes as it impacts on investor sentiment. The level of interest rates, set by the Federal Reserve (Fed), also influences the DJIA 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.

What is Dow Theory?

Dow Theory is a method for identifying the primary trend of the stock market developed by Charles Dow. A key step is to compare the direction of the Dow Jones Industrial Average (DJIA) and the Dow Jones Transportation Average (DJTA) and only follow trends where both are moving in the same direction. Volume is a confirmatory criteria. The theory uses elements of peak and trough analysis. Dow’s theory posits three trend phases: accumulation, when smart money starts buying or selling; public participation, when the wider public joins in; and distribution, when the smart money exits.

How can I trade the DJIA?

There are a number of ways to trade the DJIA. One is to use ETFs which allow investors to trade the DJIA as a single security, rather than having to buy shares in all 30 constituent companies. A leading example is the SPDR Dow Jones Industrial Average ETF (DIA). DJIA futures contracts enable traders to speculate on the future value of the index and Options provide the right, but not the obligation, to buy or sell the index at a predetermined price in the future. Mutual funds enable investors to buy a share of a diversified portfolio of DJIA stocks thus providing exposure to the overall index.

Earnings of the week

Monday, November 27 - Seadrill Limited (SDRL), Zscaler (ZS)

Tuesday, November 28 - Hewlett Packard Enterprise (HPE), CrowdStrike (CRWD), Intuit (INTU), Workday (WDAY), Splunk (SPLK), NetApp (NTAP)

Wednesday, November 29 - Dollar Tree (DLTR), Hormel Foods (HRL), Salesforce (CRM), Snowflake (SNOW)

Thursday, November 30 - Dell Technologies (DELL), and Kroger (KR), Royal Bank of Canada (RY), Toronto-Dominion Bank (TD)

Friday, December 1 - Bank of Montreal (BMO)

What they said about the market – Brian Belski

Brian Belski, chief investment officer at BMO Capital Markets, has joined Deutsche Bank in providing the most bullish prediction for 2024 in regard to the S&P 500 performance. Belski says that 5,100 is his bet for the index ending value next year. This is well above the January 2022 all-time high of 4,796. Belski bases his argument on his forecast for the S&P 500 index to earn $250 next year, which is a much higher guess than many peers.

“We believe 2024 will be Year 2 of at least a 3-5 year process that will see US stocks exhibit more normal and typical performance, paced by a backdrop of normal and typical GDP and earnings growth, valuation, and bond yield ranges”

S&P 500 forecast

Including Monday’s performance thus far, it looks like the S&P 500 index has reached a serious level of resistance at 4,560. Last Wednesday and Friday also experienced low-volatility near this threshold, although that could be blamed on the Thanksgiving holiday.

Support sits nearby at the 4,541 level that stems from the lower high on September 1. If it fails to hold, then a drop back to the 20-day Simple Moving Average (SMA), now at 4,417, could be in order. A pullback seems quite likely as the S&P 500 sits in slightly overbought territory on the Relative Strength Index (RSI).

S&P 500 daily chart

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