S&P 500 Tests Yearly Low Ahead of Earnings Season in US Equities

Oct 11, 2022
VOT Research Desk

Market Insights & Analysis

The S&P 500 is expected to test the 2022 bottom in Q4 as US equities experience a sharp decline in profits growth.

Risk assets rose in anticipation of the release of the better-than-anticipated NFP data last week, which appears to have ended hopes of a Fed pivot. Since then, the S&P 500 (E-mini futures, ES1!) and US stocks have continued to fall closes in on the annual low of 3571.75.

This year’s equity bear market is unusual because unemployment has stayed the same while interest rates have risen at an incredible rate, leaving many wondering if the worst is yet to come. FactSet predicts that earnings growth for the S&P 500 index will decrease by the most in the last two years, by 6.6%.Despite this, the S&P 500’s combined growth rate is still expected to be positive, at 2.9% in Q3.

Market sentiment will likely be influenced by forward guidance for Q4 earnings in addition to the actual earnings numbers. For instance, for the first time in more than a decade, nearly half of the S&P 500’s constituent companies included the phrase “recession” in their earnings announcements during the Q3 earnings season. Since then, interest rates and inflation have continued to rise, putting even more pressure on businesses and consumers.

Technical Analytics

The S&P 500 index’s daily chart shows how close it is to printing a new annual low. The low, which is around the 3590 level in September 2020, stopped more selling at the beginning of this month. It is interesting to note that the yield on the US 10-year treasury has fallen below 4.02%, which may provide equity markets with some relief in the short term. This is because the dollar has been almost exactly following the US yields over the past few weeks.

A break below the yearly low raises the possibility of a 50% retracement of the major move between 2020 and 2021 at 3487. The February 2020 high of 3397.50 serves as the next obvious support level. However, it is important to note that markets continue to be highly responsive to data, particularly CPI data due on Thursday. A higher print indicates that the trend will continue, whereas a lower figure may provide brief relief. The June low of 3639, followed by 3723 and 3796, serves as resistance.

S&P 500