S&P 500 Shows Worst Weekly Performance Since June
Equity markets in the US closed lower to end Friday’s trade, with the benchmark S&P 500 stock index posting its worst weekly performance in 4 months. This came even with positive surprises seen in the country’s latest consumer confidence figures, as investors instead chose to focus on the negative momentum propelling European stock markets and an overall weakness in financial shares. Bank stocks were the week’s biggest losers among the S&P’s ten industry sectors with JP Morgan Chase, Bank of America, and Wells Fargo all heading lower for the week.
The latest University of Michigan consumer sentiment index rose to reach 83.1, well above the market expectations of a projected drop to 78. These figures were seen along with better than expected increases in wholesale prices but most analyst assessments suggested that these increases came on the heels of higher fuel costs, which have started to seep into other areas of production.
Worst Week in Stocks Since June
Looking at the weekly performance, the S&P 500 was lower by 2.2 percent for the week, a drop that has not been seen since June 1st. But even with these declines, the US benchmark index is still showing gains of 14 percent so far this year, propelled, in large part, by stronger corporate earnings and Federal Reserve proposals to enact in a third round of quantitative easing in order to stimulate economic growth.
But at the same time, some of these gains are viewed as being vulnerable as third-quarter corporate earnings are expected to that profits in S&P listed companies fell for the first time since 2009. Forecasts in earnings per share for S&P listed companies is expected to come in lower by nearly 1 percent (after a mostly flat performance in the second quarter). Sales are expected to come in lower by 0.6 percent, and if these forecasts prove to be accurate, we could see some significant losses in stock values.
So far, however, 35 of these companies have reported earnings since the 10th of October, and 69 percent of these statements have beaten market expectations. In sales, 51 percent of these companies managed to surpass market estimates so while we are still in the early stages of the reporting season, there is some scope for a positive performance even with the immensely negative forecasts that were originally in place.
Downward moves in the S&P 500 during the last few sessions have led to loss of support in the 1430 region and this does not bode well for trading in the index as we start next week. The next target below can be seen at 1390 and traders should wait for a drop to this area before considering new long positions for a short term run higher. A break here would be a very bearish sign, however, as this is the confluence of the 100 day EMA and the 38.2% Fibonacci retracement of the move from 1260.
About Richard Cox
University Teacher in International Trade and Finance. Specialty in technical/fundamental analysis of the commodities and currencies markets.