S&P 500 News: Index starts week on good foot, gains 1.2% on Monday

• S&P 500 loses 2.53% in final full week of October, its second consecutive week of +2% decline.
• Morgan Stanley’s Mike Wilson reiterates call for S&P 500 to fall another 5% to close year at 3,900.
• S&P 500 RSI drops to oversold territory at 29 last Friday.
• Fed FOMC meeting on Wednesday expected to keep rates unchanged.
• Apple, Starbucks, Caterpillar, Pfizer and Airbnb all report earnings this week.

The S&P 500 index gained 1.2% on Monday as the market took interest in battered down share prices following two consecutive weeks of greater than 2% losses. The NASDAQ Composite rose 1.16%, while the Dow Jones Industrial Average gained 1.58%.

Last week’s dismal performance that subtracted 2.53% from the index pushed the S&P 500 into oversold territory on the Relative Strength Index (RSI), as well as creating an official correction (-10% from the recent high).

This week the index revolves around a continued flurry of earnings calls and the Federal Reserve’s (Fed) FOMC meeting, where the central bank will determine what to do with interest rates.

Morgan Stanley’s chief bear, Mike Wilson, says to expect the index to dive further as he is reiterating his call for year-end at 3,900. For its part, Goldman Sachs says to take advantage of the attractive deals.

S&P 500 News: Where will the index finish 2023?

Mike Wilson is famous for calling 2022’s bear market swoon, and now he is once again telling anyone who will listen to forget about a Christmas rally. 

The S&P 500 index is already down about 9.7% since the end of July, and Wilson thinks the pullback is far from over. He is predicting another +5% drop to the 3,900 level the index hasn’t seen since March.

This past weekend, Morgan Stanley released a research note with Wilson’s outlook.

"We think the S&P 500 price action into year-end is more likely to come down to where the average stock is trading rather than rallying to higher levels,” the note said. “[Our 3,900 year-end target for the index] implies a 17x multiple on our 2024 EPS forecast of approximately $230."

Wilson thinks that declining consumer and business confidence will continue to hold an equity rally at bay through the New Year. 

Fed funds decision outweighed by refunding announcement

The CME Group’s FedWatch Tool gives the central bank a 97% chance of keeping rates fixed at Wednesday’s Federal Open Market Committee (FOMC) meeting on Wednesday. That means there is near certainty that the fed funds rate remains stuck at 5.25%-5.5%.

However, the FedWatch Tool puts the odds of rates remaining unchanged at the December 13 meeting at just 68%. Anything Fed Chair Jay Powell says on Wednesday could sway these odds in a mighty way. Any color on a rate cut appearing sooner than thought might lead to an equity market rally.

Traders are more focused, however, on Wednesday’s refunding announcement from the US Treasury. This is where the government details what tenures it's hoping to sell in the near future to make up for the shortfall stemming from Washington’s large budget deficit.

The composition of tenures – whether short-term bills or longer term 10 and 30-year bonds – will be watched closely on Wednesday. If Treasury yields surge during that session, expect the S&P 500 to sell off.

"There is some hope that the Treasury may pause its coupon increases it flagged back in August,” economists from Deutsche Bank wrote. “However, our strategists think this is unlikely. Remember the August refunding announcement has arguably proved to be the most important macro event of the last [three] months."

Apple, AirBNB, AMD to be most-watched earnings calls

McDonald’s (MCD) and SoFi (SOFI) earnings early Monday helped support index gains on Monday. 

Tuesday will likely hinge on Advanced Micro Devices (AMD), the semiconductor company run by CEO Lisa Su. Wall Street expects the company to earn $0.68 in adjusted earnings per share (EPS) on $5.69 billion in sales for the third quarter. Analysts have mostly revised earnings lower this time around due to perceived weakness in the chip industry.

AirBNB (ABNB) arrives on Wednesday with the Street predicting $2.16 in adjusted EPS on $3.37 billion. Analysts are largely optimistic about this quarter.

Apple (AAPL) releases quarterly results on Thursday, and negative news has already cut the share price ahead of time. Production lead times have fallen in recent weeks, suggesting to some analysts that iPhone demand is below expectations. Consensus suggests adjusted EPS of $1.39 on $89.4 billion in sales.