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The U.S. indices closed higher last week, led by the strong outperformance of the tech sector. The bulls are clearly enjoying a more favorable technical backdrop while bears failed to clear key near-term support last week.
The S&P 500 ended the week 1.9% higher after sellers failed to secure a close below the important 3,930-3,400 support area, which is marked by the 100 and 200 daily moving average lines.
Dow Jones Industrial Average gained 1.75% to post the first green close after three consecutive red candles. The NASDAQ Composite Index rose almost 2.6%.
“While most people remain quite gloomy intellectually/fundamentally, the impressive resiliency of stocks over the last couple of sessions (especially the 1.6% SPX ramp on Friday) dealt a blow to bears and spurred a lot of soul-searching among this group over the weekend,” Vital Knowledge analysts wrote in the note today.
On the valuation front, the forward 12-month P/E ratio for the S&P 500 is 17.5, below its 5-year average and below its 10-year average.
All eyes on Powell and jobs
Looking forward to this week, investors will be focused on the February Payrolls report, which is due on Friday.
“US payrolls likely mean-reverted to a still firm pace in Feb after an unexpected 517k surge in Jan. We also look for the UE rate to stay unchanged at 3.4%, and wage growth to print a strong 0.4% m/m,” TD Securities analysts wrote in a note.
Earlier, Fed Chair Jerome Powell will testify for two days before the Senate and Congress. Investors expect Powell will reaffirm that more tightening is needed.
“A concern about recent data strength likely will also be flagged but the Fed wants to see confirmation in Feb data before acting,” TD analysts added.
Other important macro catalysts for the U.S. include the JOLTs report (Wednesday) and U.S. factory/durable/capital goods orders (Monday).
Final days of the Q4 earnings season
The Q4 earnings season is almost done with 99% of the S&P 500 companies reporting actual results.
According to the data compiled by FactSet, 69% of S&P 500 companies have reported a positive EPS surprise and 65% of S&P 500 companies have reported a positive revenue surprise. So far, 81 companies have issued negative EPS guidance while 24 gave a positive forecast.
“During the months of January and February, analysts lowered EPS estimates for the first quarter by a larger margin than average. The Q1 bottom-up EPS estimate (which is an aggregation of the median EPS estimates for Q1 for all the companies in the index) decreased by 5.7% (to $51.13 from $54.20) from December 31 to February 28,” FactSet analysts wrote in a note.
This week’s earnings calendar is light and includes CrowdStrike (NASDAQ:CRWD), MongoDB (NASDAQ:MDB), Oracle (NYSE:ORCL), and Ulta Beauty (NASDAQ:ULTA).
What analysts are saying about U.S. stocks
BTIG analysts: “We think the counter-trend rally can carry a bit further, but expect the 4060-4080 zone on SPX to represent firm resistance based on retesting the broken uptrend, horizontal resistance from the mid-Feb. breakdown, and the falling 20 DMA.”
Morgan Stanley analysts: “Equity markets survived a crucial test of support last week that suggests this bear market rally is not ready to end just yet. However, our GVAT team’s analysis of accruals strongly supports our view that earnings estimates remain far too high; and therefore, the bear market is not over.”
JPMorgan analysts: “Our core view is that the current activity upswing, helped by the falling gas prices in Europe and by China reopening, is unlikely to develop into a fully fledged acceleration in 2H. After all, the impact of the policy tightening works with a lag, and central banks are far from even pausing, let alone pivoting. We advise to use the Q1 strength in order to reduce exposure.”
Barclays analysts: “Markets appear to be increasingly comfortable with “higher for longer” rates after Atlanta Fed President Bostic lent vocal support to sticking with quarter-point rate hikes on the way to a potential mid-to-late summer pause, particularly as strong employment and ISM services data stoke speculation around a Goldilocks “no landing” scenario… The “no landing” scenario seems well within the realm of plausibility for equity markets.”
Vital Knowledge analysts: “Our view remains that dips to ~4000 or lower should be bought as this rough patch of data will soon end, with the disinflation process resuming and labor cooling off the scorching 500K+ pace from January. The hawkish fever should break by the spring, at which time investors will begin shifting their focus to 2024, a period during which the SPX should be able to earn ~$240+.”
