S&P 500 and FTSE Prepare for Major Earnings Reports

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FTSE 100, S&P 500 ANALYSIS

• Global equities looking out of favor as aggressive rate hikes take shape
• Disappointing UK retail sales data, low growth and rising inflation weigh on the FTSE
• Apple, Microsoft, Alphabet, Meta and Twitter among some of the major earnings this week

EQUITIES LOOK VULNERABLE AHEAD OF AGGRESSIVE TIGHTENING

Last week we witnessed a decline in risk appetite across equity markets which appears to be continuing at the start of this week. Equity valuations in general, are due to come under pressure as global central banks aggressively ramp up interest rates in a bid to suppress inflation. The combination of persistently higher prices and higher borrowing costs means spending and demand in general, are likely to decline. Markets anticipate multiple 50 basis point hikes in the US, starting next week and a further 150 basis points of hiking in the UK before year end.

POOR UK FUNDAMENTALS WEIGH ON THE FTSE AHEAD OF BANK EARNINGS

Sticking with the UK, last week’s shocking retail sales data combined with a pessimistic growth outlook by the IMF weighs heavily on the FTSE 100. Major UK bank earnings due this week could help support the market as banks tend to perform better during periods of increasing interest rates as they capitalize on the differential between interest charged to borrowers over interest paid to depositors.

Major UK bank earnings due for release this week:

• HSBC
• Lloyds
• Barclays
• Standard Charted
• Natwest

The weekly FTSE chart reveals what looks like a double top formation – major reversal pattern – as price action heads lower.

Weekly FTSE 100 Chart Highlighting Potential Reversal Setup

Source: TradingView, prepared by Richard Snow

The daily chart helps to navigate upcoming moves as price action drops below 7400 with relative ease. The next level of support comes in at 7220, then the long-term, ascending trendline and finally, the zone of support between 6950 and 6990. Expect, elevated volatility around earnings releases this week as the earnings calendar heats up.

Nearby resistance remains at the 7400 psychological level, followed by the double top near 7676.

Daily FTSE 100 Chart

Source: TradingView, prepared by Richard Snow

BIG TECH NAMES AMONG THIS WEEK’S MAJOR US EARNINGS RELEASES

Alphabet, Microsoft, Meta Platforms, Amazon, Intel, Apple and Twitter all release their earnings reports this week which is likely to contribute to volatility throughout the week.

Taking a look at the weekly chart, the tech heavy index failed to test the January high of 4808, stopping at 4631, and continues to trade lower. The reality of multiple 50 bps hikes from the Fed poses a threat to tech stocks which were the main beneficiaries of the extended period of low interest rates. Now that rates are on the rise to combat inflation, tech and other large cap valuations are likely to weaken.

S&P 500 Weekly chart

Source: TradingView, prepared by Richard Snow

The S&P 500, like the FTSE 100 chart, reveals a long-term reversal pattern – the head and shoulders pattern. As such, traders look for greater bearish conviction upon a break of the ‘neckline’ shown as the orange dashed line. This presents a very interesting area (purple rectangle) that overlaps the 4120 level with the sloped neckline and could be key in determining longer-term bearish continuation. A break below, sees 3950 as the next significant level of support.

With a flurry of earnings this week, positive surprises could help buoy sentiment, leading prices somewhat higher over the shorter-term which would highlight 4420 as resistance.

S&P 500 Daily Chart

Source: TradingView, prepared by Richard Snow

 

--- Written by Richard Snow for DailyFX.com