- The S&P 500 lost 0.8% last week but was mostly saved by Friday’s 1.85% surge.
- PacWest and other regional banks jumped higher on Monday.
- The Consumer Price Index for April is released on Wednesday.
- Earnings releases from Airbnb, Coupang, Disney and Paypal will confirm sentiment.
Last Friday saved the S&P 500 index from a very bad week. Friday’s 1.85% jump reduced what would have been a sizable plunge to a 0.8% decline on the week. This was helped by the extraordinary rebound in regional banks. After falling four sessions in a row, the KBW NASDAQ Regional Banking Index (KRX) returned 4.7% on Friday. Slated for a sale or a federal takeover earlier in the week, PacWest Bancorp (PACW) jumped nearly 82% on Friday. Now PacWest stock is trading up another 34% in Monday’s premarket after slicing its dividend down to just one penny. This could presage an end to the turmoil in the banking sector since PacWest is viewed as the most worrisome major regional after First Republic’s (FRC) downfall.
At the time of writing, S&P 500 (SPX) futures are slightly ahead 0.1%, While NASDAQ 100 futures are lower by 0.2%.
S&P 500 news: April CPI out on Wednesday
The market mover with the most focus this week is absolutely April’s Consumer Price Index (CPI) data on Wednesday. The US Bureau of Labor Statistics will unveil its measure of US inflation one hour before Wednesday’s market opens. Analysts expect a MoM core reading of April inflation of 0.4% and a YoY figure of 5.5%. For the headline number, the consensus is also 0.4% but 5% YoY. Headline CPI was just 0.1% MoM in March, and core CPI grew at 0.4% MoM.
A lower reading than consensus could help the S&P 500 pop since it would likely lead traders to think the Fed is competingly done raising rates this year and is more likely to cut them sooner rather than later. Lower inflation should also help beaten up banks to continue rebounding from last week’s sell-off.
A higher reading is likely to scare markets and could lead to much worse market sentiment for financial stocks exhausted by worries over a higher interest rate environment. Growth and tech stocks are also likely to do poorly if the inflation reading comes in high.
End of earnings season sees some well-known names
The Walt Disney Company (DIS) also releases quarterly earnings on Wednesday, giving hump day even more significance following that morning’s CPI release. Analysts expect $0.72 in GAAP earnings per share, a fall from the year ago quarter, while revenue is expected at $21.8 billion – a healthy gain from a year ago.
PayPal (PYPL) has mostly seen analysts upgrade its prospects for the most recent quarter with 16 upward revisions and 8 downward revisions over the past 90 days. Updated consensus now calls for the payments company to report $0.67 in GAAP earnings on $6.99 billion in revenue after the close on Monday.
Tuesday sees Airbnb (ABNB) as the top tech company reporting this week. Analysts have been bullish on profits for this quarter with many revisions pushing consensus to $0.16 in adjusted EPS on revenue of $1.79 billion. Further highlights of the week include Li Auto (LI) and JD.com (JD) from China, South Korea’s Coupang (CPNG) and Saudi-controlled Lucid Group (LCID). The Trade Desk (TTD), Roblox (RBLX) and Unity Software (U) will also be watched on the tech front.
Earnings of the week
Monday, May 8 – PayPal Holdings (PYPL), Tyson Foods (TSN), KKR (KKR), Lucid Group (LCID)
Tuesday, May 9 – Airbnb (ABNB), Fox (FOX), Coupang (CPNG)
Wednesday, May 10 – Disney (DIS), Trade Desk (TTD), Roblox (RBLX), Li Auto (LI), Unity Software (U)
Thursday, May 11 – JD.com (JD), News Corporation (NWS)
Friday, May 12 – Charlotte’s Web (CWBHF)
S&P 500 quote: Warren Buffet
Speaking at Berkshire Hathaway’s annual shareholder meeting over the weekend, Warren Buffet prophesied that an earnings downturn is likely this year due to extremely high levels of inventory across industries that will likely need to be sold at low margins.
“In the general economy, the feedback we get is that perhaps the majority of our businesses will actually report lower earnings this year than last year”
S&P 500 technical analysis: Evening star formation fails on Friday
Last week’s textbook evening star formation on the S&P 500 daily chart had us thinking that a major downturn was in the cards. Friday’s giant bull run, however, has us thinking differently. Last Thursday’s broad sell-off put in the second part of a double bottom formation with Wednesday, April 26. Both sessions found their lows just below 4,050. This candlestick pattern typically leads to a rally.
As we wrote last week, the S&P 500 finds itself back in the middle of the 4,100 to 4,200 resistance zone. Breaking above 4,200 is still the sign that the market is back in bull mode. A weekly close above 4,200 will almost surely lead to a large reentry of institutional investors that will push up the index to August 2022’s range high at 4,325.
S&P 500 daily chart