S&P 500 weekly report: What's ahead this week

Cautious start to the week as US election uncertainties loom

Markets are pricing the upcoming US elections to be a closely contested match, with the lead between Kamala Harris and Donald Trump narrowing significantly over the past weeks. US Treasuries were sold off overnight, the US dollar hit its highest level since early-August this year, while US equities came in mixed. Market participants are now digesting the higher risks of a ‘Red Wave’, which could come with more spending and higher inflation. This comes along with the recent run in stronger-than-expected economic data out of the US, which call for the Federal Reserve (Fed) to be patient in its easing process.

It is light on the economic front this week, but nevertheless, attention will revolve around the US corporate earnings eg. Tesla. Recent Fedspeak has failed to sway Fed rate expectations much, with the next key determinant being the US non-farm payroll report next Friday.

What’s ahead this week?

This week will bring a series of flash manufacturing & services Purchasing Managers' Index (PMI) data. For the US, manufacturing PMI is expected to improve to 47.5 versus the 47.3 prior, and services activities are expected to ease slightly to 55.0 from previous 55.2. This will reflect the manufacturing sector in contraction for the fourth straight month, while services growth continues to slow. Barring any significant deviation from consensus, the current view for a 25 basis point (bp) rate cut in November and December should remain anchored, which could lead the US dollar’s rally to take its cue from shifting US presidential odds.

On the earnings front, Tesla’s results will be in the spotlight this week. Expectations are for 3Q revenue to rise 8.7% year-on-year to US$25.4 billion. Earnings per share (EPS) are expected to contract 11.5% to US$0.58 from the US$0.66 a year ago. Key areas of interest include the potential impact of price cuts on profitability and the outlook for vehicle deliveries for the rest of the year and into 2025. Any updates on its full self-driving technology and its Robotaxi project will be welcomed as well.

Nasdaq 100: Awaiting fresh catalyst to retest previous record high

Despite Treasury yields surging to its highest level in two months, the rate-sensitive Nasdaq 100 index has managed to stay resilient, being less than 2% away from its previous record high. A flat-lined moving average convergence/divergence (MACD) on the daily chart points to a lack of momentum in the near term however, with a light economic calendar this week putting sentiments on some wait-and-see.

Focus will be on upcoming corporate earnings to justify the relatively high valuation in tech stocks. A move in the index above its July 2024 high at the 20,700 level could pave the way towards the 22,000 level next. On the downside, a retracement will still leave buying-on-dips as the preferred approach. Its weekly relative strength index (RSI) has been trading above the mid-line since January 2023, keeping an upward bias in place. Near-term support to watch may be at the 19,670 level, followed by the 18,920 level.

Levels:

R2: 22,000
R1: 20,700

S1: 19,670
S2: 18,920

Source: IG charts

Sector performance

Sector performance over the past week was mixed, with the rate-sensitive utilities sector (+1.7%) pulling ahead from the rest despite a surge in Treasury yields. Financials were up 0.9%, buoyed by a series of profit beat across the major US banks. On the other hand, a below-forecast profit guidance from UnitedHealth proved to be a drag on the healthcare sector (-2.2%), while the energy sector remains suppressed by lower oil prices. Ahead, the US earnings season may continue to be front and centre in driving sector performance. Netflix (+8.3%) has delivered a positive start for growth stocks’ earnings with higher-than-expected subscribers growth, with the onus now on Tesla’s earnings this week to sustain the momentum. Over the past week, the Magnificent Seven stocks were mixed, with greater traction revolving around Nvidia (+4.1%) and Apple (+2.2%).

Source: Refinitiv

Source: Refinitiv

Source: Refinitiv
*Note: The data is from 15th – 21th October 2024.

Source: Refinitiv
*Note: The data is from 15th – 21th October 2024.

Source: Refinitiv
*Note: The data is from 15th – 21th October 2024.