The S&P 500 Index (CME: ES) is poised for its first week of gains in four, marking a rise of over 1.4% for the week. However, the week was marked by notable volatility, primarily driven by mixed earnings reports. Upbeat earnings reports from some tech giants were overshadowed by a disappointing forecast from Meta Platforms, sparking a tech sell-off and raising concerns about the sector’s health. This uncertainty, coupled with rising bond yields, injects a dose of caution into the market sentiment.
Meta Platforms’ weak revenue guidance for Q2, despite exceeding Q1 estimates, sent shockwaves through the tech sector. Investors grew anxious about the surging cost of artificial intelligence (AI) technology, a key investment area for Meta. This anxiety quickly spread to other tech giants, with stocks like Amazon, Alphabet, and Nvidia experiencing after-hours declines. The episode highlights the interconnectedness of the tech sector and its vulnerability to negative sentiment shifts.
The remainder of the week brings a wave of earnings reports from major companies, including Alphabet and Microsoft. These reports will be critical in gauging the overall health of the corporate sector and its ability to navigate rising costs and economic headwinds. Additionally, bond yields continued their upward climb, potentially pressuring equity valuations as the relative attractiveness of fixed income rose. The interplay between corporate earnings and bond yields will be a key driver of market sentiment in the near future.
Technical Analysis
The index’s 4-hour chart reflects the current indecision. The index is currently trading flat, hovering around the 20-SMA (green line) and 50-SMA (blue line), both of which remain below the 100-SMA (orange line). This technical configuration suggests a possible short-term downtrend.
A sustained push above the 50-SMA, however, could signal a potential short-term bullish reversal. This move could open up opportunities for a test of the 5,128.50 resistance level. A decisive break above this level, accompanied by significant volume, could lead to further upward momentum towards the 5,194.75 and 5,253.25 resistance levels.
Conversely, a failure to hold above the 50-SMA could embolden the bears. A breakdown below the key support level of 5,029.25, with significant volume, could trigger further selling pressure and a potential test of the major support zone at 4,963.50.
Summary
The S&P 500 faces a critical juncture. The upcoming earnings reports and the trajectory of bond yields will be key factors influencing the index’s direction. The technical outlook suggests a potential breakout on either side of the current trading range, with the bulls needing a decisive push above the 50-SMA to regain control.
Sources: TradingView, Trading Economics, Reuters.
Piece written by Mfanafuthi Mhlongo, Trive Financial Market Analyst
