US stocks could struggle to extend their seven-week winning streak as the quarterly earnings period draws to a close and the market bumps into strong technical resistance.
Many analysts say the market could spend the next few weeks consolidating gains that have lifted the benchmark Standard & Poor’s 500 by 6.6 percent since the start of the year.
The S&P 500 ended up 0.1 percent for the week, recovering from a late sell-off on Friday after a Bloomberg report about slow sales this month at Wal-Mart triggered a slide in the retailer’s shares. It was the index’s seventh week of gains.
Odds of a pullback are increasing, with the market in slightly overbought territory, said Bruce Zaro, chief technical strategist at Delta Global Asset Management in Boston.
“I do suspect the closing of the earnings season will lead to at least a pause and possibly a pullback,” Zaro said.
The S&P 500 could shave between 3 and 5 percent between now and early April, he said.
Fourth-quarter earnings have mostly beaten expectations. Year-over-year profit growth for S&P 500 companies is now estimated at 5.6 percent, up from a Jan. 1 forecast for 2.9 percent growth, and 70 percent of companies are exceeding analyst profit expectations, above the 62 percent long-term average, according to Thomson Reuters data.
On Thursday, Wal-Mart, the world’s largest retailer, is due to report results, unofficially closing out the earnings period. Investors will be keen to see its quarterly numbers, especially after the Friday’s news report that rattled investors.
The S&P 500 has gained 4.3 percent since Alcoa started the earnings season on Jan. 8.
The approaching March 1 deadline for across-the-board federal budget cuts unless Congress reaches a compromise adds another reason for caution, especially with recent economic data indicating the recovery remains bumpy.
Manufacturing output fell 0.4 percent last month, the US Federal Reserve said on Friday, but production in November and December last year was much stronger than previously thought.
The S&P 500 has been trading near five-year highs, and it notched its highest level since November 2007 this week. However, the gains have pushed the benchmark index almost as far as it is likely to go in the near term, with strong resistance hovering around 1,525 and 1,540, one analyst said.
As a result, the index is set to move sideways, said Dave Chojnacki, market technician at Street One Financial in Huntington Valley, Pennsylvania.
“We just don’t have the volume or the catalyst right now” to go above those levels, he said.
At the same time, other analysts say, the market has not shown significant signs of slowing, including a break below 15 and 30-day moving averages.
Such moves would be needed to show that momentum is slowing or that the market is at risk of a correction, said Todd Salamone, director of research for Schaeffer’s Investment Research in Cincinnati, Ohio.
The S&P 500’s 14-day moving average is at 1,511 while the 30-day is at 1,494. The index closed on Friday at 1,519.79.
Recent M&A activity, including news this week of a merger between American Airlines and US Airways Group, helped provide some strength for the market this week and optimism that more deals may be on the way.
In the coming days, the market will focus on minutes from the latest US Federal Reserve meeting, due to be released on Wednesday, which could provide support if they suggest the Fed will remain on its current course of aggressive monetary easing.
The Fed minutes released last month spooked markets a bit when they revealed that some Fed officials thought it would be appropriate to consider ending asset purchases later this year. US Treasury yields rose on that news, though market worries about a near-term end to quantitative easing have since faded.
BUSINESS UPDATE: The iPhone assembler said operations outlook is expected to show quarter-on-quarter and year-on-year growth for the second quarter Hon Hai Precision Industry Co (鴻海精密) yesterday reported strong growth in sales last month, potentially raising expectations for iPhone sales while artificial intelligence (AI)-related business booms. The company, which assembles the majority of Apple Inc’s smartphones, reported a 19.03 percent rise in monthly sales to NT$510.9 billion (US$15.78 billion), from NT$429.22 billion in the same period last year. On a monthly basis, sales rose 14.16 percent, it said. The company in a statement said that last month’s revenue was a record-breaking April performance. Hon Hai, known also as Foxconn Technology Group (富士康科技集團), assembles most iPhones, but the company is diversifying its business to
Apple Inc has been developing a homegrown chip to run artificial intelligence (AI) tools in data centers, although it is unclear if the semiconductor would ever be deployed, the Wall Street Journal reported on Monday. The effort would build on Apple’s previous efforts to make in-house chips, which run in its iPhones, Macs and other devices, according to the Journal, which cited unidentified people familiar with the matter. The server project is code-named ACDC (Apple Chips in Data Center) within the company, aiming to utilize Apple’s expertise in chip design for the company’s server infrastructure, the newspaper said. While this initiative has been
GlobalWafers Co (環球晶圓), the world’s No. 3 silicon wafer supplier, yesterday said that revenue would rise moderately in the second half of this year, driven primarily by robust demand for advanced wafers used in high-bandwidth memory (HBM) chips, a key component of artificial intelligence (AI) technology. “The first quarter is the lowest point of this cycle. The second half will be better than the first for the whole semiconductor industry and for GlobalWafers,” chairwoman Doris Hsu (徐秀蘭) said during an online investors’ conference. “HBM would definitely be the key growth driver in the second half,” Hsu said. “That is our big hope
The consumer price index (CPI) last month eased to 1.95 percent, below the central bank’s 2 percent target, as food and entertainment cost increases decelerated, helped by stable egg prices, the Directorate-General of Budget, Accounting and Statistics (DGBAS) said yesterday. The slowdown bucked predictions by policymakers and academics that inflationary pressures would build up following double-digit electricity rate hikes on April 1. “The latest CPI data came after the cost of eating out and rent grew moderately amid mixed international raw material prices,” DGBAS official Tsao Chih-hung (曹志弘) told a news conference in Taipei. The central bank in March raised interest rates by