Chart of the day - US500 (31.10.2024)

Great results from Alphabet, Microsoft and Meta Platforms have failed to improve sentiment in the US stock market, which is beginning to be pressured by the strengthening US dollar and rising treasuries yields. Shares of both Microsoft and Meta are losing in pre-market almost 4% respectively, while yesterday market reaction to its earnings reports was much more optimistic, with MSFT gaining almost 3% after-hours. Today, Apple (AAPL.US) and Amazon (AMZN.US) will present quarterly reports after the close of the US session, which, combined with the release of PCE inflation and claims at 12:30 PM GMT, means we can expect heightened volatility in the stock market again.

• So far, the earnings season has been quite disappointing (despite very solid BigTech earnings reports) with a few companies are disappointing expectations, and shares of some companies (including Meta Platforms yesterday) are losing, despite companies reporting very good results, as comments on forecasts fail to justify high valuations and inflated Wall Street 'unofficial' expectations.
• According to FactSet, earnings growth for S&P 500 companies (as of the end of last week) was at a 3.6% annual rate, while the index has risen more than 36% over the past year. At the end of last week, for the fourth quarter of 2024, a total of 20 companies issued downgraded forecasts, while positive ones were issued by 11 companies.
• A total of 5 S&P 500 sectors are reporting lower earnings (weaker earnings per share / lowered earnings forecasts). Average net margins are 12% vs. 12.2% in Q2 2024 and 12.2% in Q2 2023; still above the 10-year average of 11.5%. A total of 3 segments of S&P 500 companies report higher net margins y/y (strongest growth in the information technology sector where the margin is 24.7% vs. 23.9% a year earlier) vs. 7 sectors reporting declining momentum (energy sector the weakest)

As a result, with heightened volatility around the US election and broader uncertainty around the continued trend in yields, a short-term correction still seems an unlikely scenario, while the US500 is trading near de facto historical highs. Valuations remain historically high, but not excessively high in comparison to multi-year averages. In addition to Apple and Amazon, Intel will report results after the session, and Uber and Mastercard will report before the US open.

US500 (H1 interval)

The RSI on the hourly interval indicates less than 20, signaling an extreme oversold level. In a bullish scenario, a completed 1:1 correction could push the index back to the 5900-point area. If the index falls on heavy volume, below 5800 points, we can expect a test of local minima at 5700 points. The forward P/E ratio for the S&P 500 index is currently 21 versus 19.6 for the 5-year average and 18.1 for the 10-year average. 

Source: xStation5