S&P 500 May Eye Higher Levels On Upbeat Earnings, Stimulus Hopes

S&P 500 FUNDAMENTAL FORECAST: BULLISH

  • The S&P 500 index may weather through near-term headwinds and aim for higher levels
  • So far in the earnings season, over 80% of the index’s constituents have beaten estimates
  • US election and slower recovery are the key risks amid a second viral wave

S&P 500 INDEX OUTLOOK:

The S&P 500 index (SPX) retreated from a six-week high since the start of the earnings season, in which big American banks delivered strong Q3 results. US banks were benefiting from lower loan-loss provisions and higher trading income amid improved market conditions. More than 80% of the S&P 500 companies, which have released results so far, have smashed analysts’ forecasts. This may set an upbeat tone for the rest of the earnings season.

This week, around 17% of the S&P 500 companies will unfold their Q3 results, include Procter & Gamble(PG), Netflix (NFLX), Abbott (ABT), Coca-Cola (K), AT&T (T), American Airlines (AAL), Intel (INTC) and American Express (AXP).

The second US fiscal stimulus package remains a key focus too. As investors count down for the US presidential election, the likelihood for a program to be approved before 3rd November appears to be thin. This assumption, however, may not totally deter investors from risk-taking as recent polls point to a strong lead for Joe Biden over Donald Trump, which may pave the way for a Democratic-led relief package that markets seem to favor. A ‘blue wave’ election outcome could mean Democrats in charge of the White House, Senate and House, removing hurdles to pass substantial fiscal support for the US economy.

S&P 500 Index vs. Trailing 12 month EPS (2015-2020)

S&P 500 May Eye Higher Levels on Upbeat Earnings, Stimulus Hopes

Source: Bloomberg, DailyFX

Some near-term headwinds include election risks and a ‘second wave’ of coronavirus in parts of the world, which could dampen a fragile recovery. US jobs data has shown early signs of weakness with an unexpected rise in the jobless claims number last week. Chinese CPI and PPI readings both fell short of expectations, underscoring weaker demand for factory output from the world’s second-largest economy.

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