S&P500 Forecast: Stocks falls after strong retail sales data, yields rise

Congress building
Fiona Cincotta
By :  ,  Senior Market Analyst

US futures

Dow futures -0.30% at 33889

S&P futures -0.5% at 4350

Nasdaq futures -0.76% at 15059

In Europe

FTSE +0.17% at 7649

Dax -0.57% at 152140

  • US retail sales are much stronger than expected
  • Yields rise, overshadowing Middle East developments
  • Goldman Sachs, Bank of America beat forecasts
  • Oil steadies after losses yesterday

Banks beat earnings estimates

U.S. stocks are heading for a weaker start as bond yields rise as the focus tips back to corporate earnings and the strength in  US economy overshadowing developments in the Middle East.

US retail sales rose 0.7% MoM in September after being upwardly revised to 0.8% in August. Expectations had been for a 0.3% rise. Even retail sales excluding gasoline rose 0.6%, highlighting the strength of the US consumer even when more expensive prices at the pumps are taken into account. The upbeat retail sales data highlights the resilience of the US economy, fueling bets that the Federal Reserve will need to keep interest rates high for longer.

Looking ahead, US industrial production is expected to stay flat in September at 0% after rising 0.4% in September.

Several Fed officials are also due to speak, including Michelle Bowman and Fed Barkin. Their comments will be scrutinized closely for clues over the outlook for the US economy and the future path for inflation and interest rates.

Recent Fed speakers have suggested that another rate hike this year may not be necessary. Should we hear more comments along these lines, stocks could find support, and the USD could fall.

While not being front and centre, geopolitics political risk remains on investors' radars as President Joe Biden is set to visit Israel tomorrow in an attempt to de-escalate tensions in the Middle East. His trip comes after Iran's foreign minister he warned that there would be consequences if Israel acted in Gaza.

Corporate news

Bank of America is rising after posting stronger-than-expected Q3 top and bottom line results. The bank posted EPS of $0.90 versus $0.82 cents expected on revenue of $25.3 billion versus $25.14 billion expected. The upbeat numbers come thanks to better-than-expected interest income after the Federal Reserve hiked rates aggressively across the quarter.

Goldman Sachs’ results also beat estimates, with profits falling less than expected thanks to deal-making offsetting a write-down of $864 million related to the GreenSky fintech business and investments in real estate. Net profits plunged 33% to EPS of $5.47, above $5.31 forecast. A continued recovery in both capital markets and strategic activity is expected.

Johnson & Johnson, the multinational drug and medical equipment maker, is set to rise 2% on the open after Q3 earnings and sales beat estimates. J&J posted EPS of $2.66 on $21.35 billion in revenue, ahead of $2.52 and $21.04 billion forecast.

S&P500 forecast – technical analysis.

The S&P500 trades caught between the 20 & 50 sma, while the RSI is neutral. Traders could look for a breakout trade. Sellers could look for a fall below the 20 sms at 4315, to extend losses to 4300 rebound number ahead of the 200 sma at 4250. Buyers could look for a rise over 4400, the 50 sma and the October high to extend gains towards the 100 sma at 4420 and the falling trendline resistance at 4450.

S&P 500 FORECAST CHART

FX markets –USD rises, GBP falls

The USD is rising after stronger-than-expected US retail sales support the view that the Federal Reserve may need to adopt a more hawkish stance and keep interest rates higher for longer.

EUR/USD is falling on USD strength and despite data showing that German ZEW economic sentiment improved by considerably more than expected. The ZEW economic sentiment index rose to -1.1, up from -11.4 in September, well ahead of the -9.3 level forecast. The data suggests that the low point has passed and that the outlook is brightening for the eurozone’s largest economy.

GBP/USD is falling after UK data showed UK wage growth is starting to ease. Wage growth excluding bonuses slipped in the three months to August to 7.8% from a year earlier, down from an upwardly revised 7.9% in July, which was a record high. While the ONS data didn't come with employment and unemployment figures, the fall in wage growth could help build confidence at the Bank of England that interest rate hikes are taking effect.

EUR/USD -0.12% at 1.0550

GBP/USD -0.6% at 1.2144

Oil holds steady, with Middle East still in focus

Oil prices are holding steady after volatility last week and after prices slid $1 yesterday on news that US President Biden is heading to the Middle East.

The selloff yesterday suggests that the market considers that Biden’s presence in the Middle East could help calm the mood in Israel and potentially ease tensions in the Middle East or at least make Iran think twice before getting involved. Worries of the Israel-Hamas conflict widening to involve oil-rich nations sent Brent 7.5% higher last week in its largest weekly gain since February.

Elsewhere, Venezuela’s government is set to resume talks with the opposition government, a move that could lead to the US easing sanctions.

 

WTI crude trades +0.2% at $85.39

Brent trades +0.2% at $89.10

Looking ahead

14:15 US industrial production

14:20 Fed Bowman speaks

15:45 Fed Barkin speaks

Related tags: US Open USD SPX 500 Oil

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