- US stock market will be closed on Thursday, November 23 and shortened on November 24.
- The S&P 500 index rose 2.24% last week on a lower October inflation reading.
- Economic calendar offers Durable Goods Orders, FOMC Minutes and November PMIs.
- Nvidia earnings on Tuesday are the primary focus of traders this week.
- Lowe’s, Deere, Zoom Video Communications and Baidu will also report quarterly results.
The S&P 500 index rose on Monday as Wall Street traders have a short window ahead of the Thanksgiving holiday on Thursday. Following three weeks of advances, the S&P 500 may continue to rally ahead of the normally strong December month that benefits from the Santa rally. Historically, December is the best month for stock market gains, so we’re unlikely to see much downward pressure in the latter half of November.
That said, the S&P 500 added 2.24% last week following reduced inflation reported in October’s Consumer Price Index (CPI) last Tuesday. The entire index has risen three weeks in a row, gaining 9.6% over that time period. This means that room for further upside might be somewhat muted this week, and the index does look overbought on the Relative Strength Index (RSI).
Besides Durables Goods Orders and FOMC minutes, the primary event this week will be Nvidia (NVDA) earnings on Tuesday. Expect the market to find direction in this shortened week based on this premier semiconductor company’s results.
S&P 500 News: All eyes on Nvidia
Nvidia has already experienced a year to remember. Tuesday’s third-quarter release is the only thing that could dim the memories. Despite disadvantages attributed to the semiconductor industry’s cyclicality and the Biden administration’s sanctions on China, analysts have unanimously – all 39 covering NVDA stock – raised their earnings forecasts over the past 90 days.
Nvidia is forecast to report $3.39 in adjusted earnings per share (EPS) on $16.11 billion in sales for the third quarter, when the company led by CEO Jensen Huang reports after the close on Tuesday. This amounts to a 484% increase in adjusted EPS and a 172% increase in revenue from the year ago quarter.
NVDA shares will likely swing based on the outlook for the fourth quarter. As far as data center revenue goes, the segment that has been pushing Nvidia’s growth narrative due to artificial intelligence applications, analysts predict $12.9 billion in Q3 sales.
Last week, Citi analyst Atif Malik wrote that buy-side investors have much rosier views on both Q3 and Q4 data center revenues however. Forecasts he has heard range from $13.5 billion to $14 billion in Q3. Whereas Wall Street analysts have a $14.7 billion consensus for data center revenue in the fourth quarter, Malik says the buy-side is predicting between $15 and $15.5 billion in sales. This means that guidance for the fourth quarter will be eagerly watched and could tip the scales depending on the view from the top.
Shareholders and analysts will also be looking for more color on how the Biden administration’s trade sanctions against China will affect next year’s growth story. Earlier in November, Nvidia said that it was working on China-specific chips that could be used for generative AI applications and would still get the greenlight from the White House.
Additionally, analysts are expecting a more detailed roadmap for Nvidia’s new Hopper 200 GPU. Announced last week, the H200 is scheduled to begin shipping during the second quarter of next year. The new architecture doubles the memory capacity and bandwidth of Nvidia’s A100 GPU.
In addition to Nvidia, Zoom Video Communications (ZM) will report earnings after the bell on Monday. On Tuesday, Baidu (BIDU), Dick’s Sporting Goods (DKS), Lowe’s (LOW) and AutoDesk (ADSK) report as well. On Wednesday, Deere (DE) releases fiscal fourth-quarter results.
FOMC Minutes, Durable Goods Orders round out calendar
Besides the earnings calendar, a few interesting releases stick out during the shortened Thanksgiving week. The Minutes from the last Federal Open Market Committee (FOMC) meeting arrive during Tuesday’s session and may overwhelm positive earnings news. The release will detail Fed members’ thinking on inflation and other economic indicators such as Retail Sales data and Unemployment and how they affect the central bank’s thinking about the timeline for lowering interest rates.
Investors will continue to watch US Treasury yields all week. Yields are higher across the curve on Monday, but this does not seem to be hurting equity prices. Based on data from the CME Fedwatch Tool, 29% of the market expects a rate cut at the March 20 meeting and 59% expect a rate cut at the May 1 meeting. Until then, the fed funds rate should remain stuck at 5.25% to 5.5%.
On Wednesday, Durable Goods Orders for October will be released by the US Census Bureau. Consensus expects a reading of -3%, which is a pullback from September’s reading of 4.6%. Analysts have been noting a soft landing narrative coming into its own from recent economic data, but a much worse Durable Goods Orders report could worry the market.
On Friday, during the shortened trading day that ends at 1:00PM EST, S&P Global’s preliminary Manufacturing and Services PMIs for November will be released. Consensus has October’s 50 reading falling to 49.8 for Manufacturing, and Services is expected to see October’s 50.6 print drop to 50.4.
S&P 500 FAQs
The S&P 500 is a widely followed stock price index which measures the performance of 500 publicly owned companies, and is seen as a broad measure of the US stock market. Each company’s influence on the computation of the index is weighted based on market capitalization. This is calculated by multiplying the number of publicly traded shares of the company by the share price. The S&P 500 index has achieved impressive returns – $1.00 invested in 1970 would have yielded a return of almost $192.00 in 2022. The average annual return since its inception in 1957 has been 11.9%.
Companies are selected by committee, unlike some other indexes where they are included based on set rules. Still, they must meet certain eligibility criteria, the most important of which is market capitalization, which must be greater than or equal to $12.7 billion. Other criteria include liquidity, domicile, public float, sector, financial viability, length of time publicly traded, and representation of the industries in the economy of the United States. The nine largest companies in the index account for 27.8% of the market capitalization of the index.
There are a number of ways to trade the S&P 500. Most retail brokers and spread betting platforms allow traders to use Contracts for Difference (CFD) to place bets on the direction of the price. In addition, that can buy into Index, Mutual and Exchange Traded Funds (ETF) that track the price of the S&P 500. The most liquid of the ETFs is State Street Corporation’s SPY. The Chicago Mercantile Exchange (CME) offers futures contracts in the index and the Chicago Board of Options (CMOE) offers options as well as ETFs, inverse ETFs and leveraged ETFs.
Many different factors drive the S&P 500 but mainly it is the aggregate performance of the component companies revealed in their quarterly and annual company earnings reports. US and global macroeconomic data also contributes as it impacts on investor sentiment, which if positive drives gains. The level of interest rates, set by the Federal Reserve (Fed), also influences the S&P 500 as it affects the cost of credit, on which many corporations are heavily reliant. Therefore, inflation can be a major driver as well as other metrics which impact the Fed decisions.
Earnings of the week
Monday, November 20 – Zoom Video (NASDAQ:ZM)
Tuesday, November 21 – Nvidia (NVDA), Lowe’s (LOW), Medtronic (MDT), Analog Devices (ADI), Autodesk (ADSK), Best Buy (BBY), Baidu (BIDU), DICK’S Sporting Goods (DKS), HP (HPQ), Nordstrom (JWN)
Wednesday, November 22 – Deere (DE)
What they said about the market – David Kostin
Goldman Sachs chief US equity strategist David Kostin announced last week that the S&P 500 should be somewhat muted in 2024. This is because the index is up more than 18% year to date, and Kostin’s team believes that the Federal Reserve (Fed) will be much slower to lower interest rates than the market generally expects. Kostin said to focus less on the index and more on specific stocks with safe balance sheets, high historical return on equity, stables earnings and revenue growth. The bank’s screen placed Nvidia, Albemarle (ALB), Eli Lilly (LLY), Enphase Energy (ENPH) and ServiceNow (NOW) in the top five.
“Consistent with our rates strategists’ and economists’ forecasts, interest rates will likely remain high and the Fed will likely not cut the policy rate until late 2024, placing a cap on valuations.”
S&P 500 forecast
Despite starting off the week slowly, the S&P 500 has just barely overcome the 4,541 range high from September 1. This is yet more confirmation of the index’s uptrend that was first noticed two weeks ago when it broke above the lower high created on October 17 at 4,393.
With the 9-day Simple Moving Average (SMA) running well ahead of its 21-day counterpart, it appears that little can stop this rally. Any trader now expects a run to the July 27 year-to-date high of 4,607 by Christmas. And there isn’t much daylight between that level and the March 2022 range high of 4,637.
S&P 500 daily chart
One thing that could get in the way is that the S&P 500 index now looks overbought on the Relative Strength Index (RSI). This does not mean that a reversal is imminent, it just means that few traders will be willing to open up new positions at this height.
S&P 500 daily chart