S&P 500 Back To All-Time High

Upside Trend In S&P 500

The S&P 500 closed at an all-time high last week on the back of a better-than-expected CPI report and the expectation that the FED will cut interest rates this week.

The trend in the S&P 500 remains to the upside, and the advanced decline line rotation remains positive.

While consumer discretionary stocks have continued to weaken relative to staples, semiconductors are consolidating and showing little sign of weakness.

To add to the picture, the bond market is not flashing any warning signs.

The last two weeks of October and the first two weeks of November are historically volatile.

Historically, technology stocks perform better in November.

That said, the mega-cap stocks have lost momentum since August, in part that reflects the rotation into gold and silver.

Earnings

Earnings will likely determine the performance of the mega-cap stocks in November.

The dominance of tech stocks in the S&P 500’s earnings is a significant factor. Any deviation from their earnings and/or guidance expectations can instil a sense of unease in the market.

The return on capital expenditure on AI projects is also receiving more attention. In the third quarter last year, Meta and Microsoft reported strong earnings and solid guidance; however, the market didn’t like their AI capital expenditure projections, and both stocks pulled back after their earnings releases.

On the flip side, if the FED lowers interest rates this week, that could ultimately lead to the release of equity from money market funds (currently around $7 trillion), which will likely seek a home in the stock market and hard assets.

S&P 500 Key Levels

The S&P 500 broke through a significant inflection point for call options at 6750, and there are analysts calling for a move to 7000 by year’s end.

For that to happen, the S&P 500 needs to break through a major technical trendline and the options high level at 6840.

The options low level sits at 6740.

That said, from a technical perspective, the RSI indicator suggests that momentum is weaker than that seen at the last all-time high.

That could indicate that a FED cut will be a ‘buy the rumour, sell the fact’ event.
The FED interest rate decision this week, coupled with earnings, will likely shape market direction, and the balance of probability suggests investors should expect choppy consolidation.