S&P 500 Forecast: Key Tech Earnings in Focus

Away from US politics, markets remain quite subdued with volatility on the lower side, primarily due to a lull in macroeconomic data and central bank action. At the weekend, China’s central bank cut interest rates, but this has hardly had any impact on risk assets. If anything, Chinese markets have fallen, suggesting investors are more concerned about the stalling economic activity (and US sanctions) there than the further loosening of monetary policy. But it seems like the weakness has been contained to China, as we have seen a modest recovery in global equity markets at the start of this week. Investors are turning their attention to US earnings with 29% of the S&P 500 companies set to report their results this week. Tonight, we will hear from two of the “Magnificent Seven” tech stocks, Alphabet and Tesla, which could impact the S&P 500 forecast.

Alphabet and Tesla to report earnings after the bell

With the economic calendar being relatively quiet, investors are closely monitoring US earnings releases. Tonight, two of the Magnificent Seven tech stocks, Alphabet and Tesla, will report their second-quarter results, alongside LVMH, the world’s largest luxury group.

Tesla is expected to turn in earnings per share of 61 cents from sales of $24.5 billion, while Alphabet is seen making $1.84 per share in profit on $84.27 billion in revenue, with Google Cloud revenue and AI updates likely to be the main focal points for the latter.

This month, the Magnificent Seven have experienced a sharp decline in total return. Therefore, tonight's results from Alphabet and Tesla will significantly influence whether the rally resumes.

S&P 500 forecast: Earnings expected to drive next leg of potential rally

The general consensus is optimistic for this earnings season, with surveys indicating that investors expect company results to fuel the next phase of the equity rally. According to FactSet, the "Magnificent 7" companies are anticipated to significantly boost S&P 500 earnings for the second quarter. Four of these companies—NVIDIA, Amazon, Meta, and Alphabet—are expected to be among the top five contributors to the S&P 500's year-over-year earnings growth for Q2 2024. Collectively, these firms are projected to achieve a 56.4% year-over-year earnings growth for the quarter.

Without these four, the blended earnings growth rate for the other 496 S&P 500 companies would be 5.7% for Q2 2024, estimates Factset. Overall, the blended earnings growth rate for the entire S&P 500 for the second quarter is expected to be 9.7%. Blended earnings combine actual and estimated results.

S&P 500 forecast: technical analysis

Source: TradingView.com

Despite printing a large bearish engulfing candle on the weekly chart, to suggest the S&P 500 chart may have formed at least a temporary top, the benchmark US stock index continues to exhibit bullish price characteristics on the lower time frames.

As you can see on this daily chart, the S&P has bounced right where it needed to: circa 5500. This level was formerly resistance and is where a trend line going back to April comes into play. The fact that it has bounced back from around this level means the bulls remain in charge despite last week’s selling. This level is the line in the sand insofar as the short-term trend is concerned.

The index has now risen back above the 21-day exponential moving average, too, to provide a further bullish signal. Short-term resistance is now seen around 5590, an area which was previously support. A decisive break above that level could pave the way for a run to a new all-time high above last week’s peak of 5673.

So, as things stand the technical S&P 500 forecast remains bullish but will need the help of tech earnings results to keep the momentum going as we head deeper into July, with the S&P has done typically well over the past 20 years with an average gain of 2.3% on the month.

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R