At the start of the new trading week, major technology stocks are falling, also driving the U.S. equity futures lower, as the 10-year Treasury yield crossed 5% for the first time in 16 years.
The new wave of selling comes after the S&P 500 (SPX) lost as much as 2.4% last week. The index is now testing the key near-term support in the range of 4180-4200. A break of this zone would mark a major bearish development that could take the S&P 500 below 4000 in the coming months.
The forward 12-month P/E ratio for the S&P 500 now stands at 17.7, which is below the 5-year average (18.7) but above the 10-year average (17.5).
The Nasdaq Composite Index (IXIC) lost 3.2% with the tech-heavy index now trading at the lowest levels since May. Tesla (NASDAQ:TSLA) contributed to the downfall with its shares closing over 15% lower in response to the soft Q3 earnings report and cautious comments on the earnings call.
Finally, the Dow Jones Industrial Average (DJI) index fell 1.6% to close below the 100-moving average.
“The bears won the week on a variety of fronts, including geopolitics (where tensions escalated globally), rates (long-end Treasury yields rose further), the trajectory of underlying growth (which seems to be cooler than the headline government statistics would suggest), and earnings (there were plenty of upside earnings reports, most notably NFLX, but the greater number of surprises came on the downside),” analysts at Vital Knowledge said on Friday.
The key economic data piece for this week is the U.S. GDP Q3 print that is out on Thursday.
Big Tech is Here
As of Q3 2023, with 17% of S&P 500 companies having reported actual results, 73% of them have exceeded their earnings per share expectations, and 66% have surpassed revenue expectations, according to FactSet. The S&P 500 is currently experiencing a blended YoY earnings decline of -0.4%.
The earnings calendar for this week is packed. Microsoft (NASDAQ:MSFT), Alphabet (NASDAQ:GOOGL), Visa (NYSE:V), and Coca-Cola (NYSE:KO) are all scheduled to report on Tuesday.
Meta Platforms (NASDAQ:META), ServiceNow (NYSE:NOW), and Boeing (NYSE:BA) are due to report on Wednesday, while Amazon (NASDAQ:AMZN), Mastercard (NYSE:MA), Intel (NASDAQ:INTC) are some of the most important reporters on Thursday. Finally, oil majors Chevron (NYSE:CVX) and Exxon (NYSE:XOM) are scheduled for Friday.
What analysts are saying about U.S. stocks
Citi’s analysts: “We remain constructive on the fundamental setup for the S&P 500 headed into 2024. No doubt, a myriad of macro forces provide risk to the outlook. Yet, at the same time, there are several trends unfolding under the surface that deserve attention.”
JPMorgan’s analysts: “Last October, USD peak coincided with the equity trough, and the more mixed equity performance in the past few months is coinciding with USD bottoming. Almost always in the past, when USD is strengthening, global equities have been under pressure.”
RBC’s analysts: “October can be a tough month for stocks, but more often than not tends to see the S&P 500 rise. Unfortunately, as of mid October of 2023, US equities are still in a spooky place.”
Morgan Stanley’s analysts: “While there are plenty of events and fundamental data points worth considering, we find many remain fixated on the Fed's next move and S&P 500 price. These factors appear to be dictating narratives and positioning. On that score, last week brought further risks to the consensus 4Q rally view.”
Goldman Sachs’ analysts: “2007. Amid higher rates, we expect investors will continue to focus on balance sheet strength and avoid companies that are most vulnerable to increased borrow costs. Performance since the start of September has reflected this dynamic as strong balance sheet stocks outperformed weak balance sheet stocks by 4 pp. For companies with strong balance sheets, we expect investors will reward those firms returning cash to shareholders and will remain skeptical of companies making large capex investments at this stage of the cycle.”