S&P 500 forecast next week: near-term momentum clearly on the side of bulls

Momentum is clearly on the side of bulls with the S&P 500 index rebounding more than 30 per cent from its coronavirus-induced lows. For the week ending 17 April, the index gained 3 per cent to close at 2,874.56. Technical followers were encouraged that the S&P 500 is now trading above its 50-day moving average. 

For the first time in recent memory, the S&P 500 index – along with the Dow Jones Industrial Average and Nasdaq 100 indices – recorded two straight weeks of gains. The near-term momentum is clearly skewed towards the upside, but this is far from guaranteed moving forward.

Trade USA 500 - US500 CFD

S&P 500 index performance: what happened last week?

US and global stocks rallied as coronavirus-themed headlines improved. It goes without saying that the growing number of deaths in the US and worldwide are tragic. But the world got a glimpse of hope last week that the pandemic has peaked or is near its peak in terms of the carnage it brought to all corners of the world.

Most notably, New York State Governor Andrew Cuomo reiterated prior claims over the week that the state is “past the plateau” of virus cases. New York City was among the hardest hit regions in the US and the world anxiously looked for signs of improvement.

Similarly, coronavirus infections appear to have peaked in many other parts of the world. 

The S&P 500 index also moved higher for the week ended 17 April week after a report emerged that Gilead Sciences’ drug called remdesivir is seeing encouraging results at a Chicago hospital. CNBC pundit Jim Cramer said the drug gives the US and the global economy a “fighting chance” as it changes the discussion on when the economy can re-open and what the American public can do.

Potential сatalyst ahead: small business loans

Reports over the weekend point to progress being made on supplemental funding for the Paycheck Protection Program for small businesses. Any agreement was held up by typical political bickering, but Treasury Secretary Steven Mnuchin said over the weekend he is “very close” to inking a deal with House Speaker Nancy Pelosi.

The $349 billion rescue loan program was cheered by investors when launched but it unfortunately ran out of cash last week. However, any agreement for incremental funding would certainly add another catalyst to the S&P 500 forecast as it can save small businesses and throw a lifeline to the American consumer, thus driving a large portion of the US economy.

What’s good for the American consumer is always good for stocks. 

S&P 500 forecast next week: notable earnings

Johnson & Johnson was the most notable S&P 500 component to report earnings last week. The fifth-largest S&P 500 component offered a boost of confidence that corporate earnings may not come in as bad as expected, at least in the first quarter.

Johnson & Johnson not only reported an earnings beat but lifted its dividend payout by 6.3 per cent from 95 cents to $1.01. Clearly, this is viewed as a sign of confidence that just maybe the full-year outlook can be salvaged – at least for the larger S&P 500 components. 

S&P 500 heavyweight Procter & Gamble also surpassed expectations in its earnings report last week. But the company was a clear benefactory of consumers stockpiling on vital goods it produces, like toilet paper and cleaning products.

Below are some notable US 500 index components reporting earnings this week. Their results will be closely watched by investors for further confirmation that the full-year economy can be salvaged or if they should start looking towards 2021 instead.

• Halliburton on 20 April.

• IBM on 20 April.

• Netflix on 21 April.

• United Airlines on 21 April.

• Biogen on 22 April.

• CSX on 22 April.

• Delta Airlines on 22 April.

• Las Vegas Sands on 22 April.

• AT&T on 22 April.

• Intel on 23 April.

• 3M on 23 April.

• Verizon on 24 April.

Debate сontinues: potential dead cat bounce versus stimulus

Heading into a new trading week, investors could re-examine their S&P 500 index models and conclude the prior week’s rebound is a “dead cat bounce”. There is no way to be certain, but investors should be reminded that a brief and unjustified rebound, especially a massive 30 per cent move, usually ends one way: with markets heading back to test their lows.

On the other side of the debate, the third week of S&P 500 index gains could be seen as confirmation that actions taken by the US Federal Reserve and other central banks across the world are working. Backed by trillions of dollars, the Fed simply won’t allow the economy to reach disaster proportions last seen nearly 100 years ago in the Great Depression.

Will this debate be resolved by the end of the trading week on 24 April? Most likely not, but we may have incremental evidence to support either side of the trade.

S&P 500 trend: key levels to be aware of

The S&P 500 index enters the new week at 2,874.56 and here some key levels to be aware of during the upcoming week. The index has shown levels of support at 2,185, which coincides with the 23 March low, 2 April low of 2,430 and 9 April low of 2,700. On the other hand, resistance levels include the 10 March high of 2,885, the psychological round-even number of 3,000, and 3 March high of 3,140.

Bottom line: don’t forget the bigger picture

Investors may be falling under the trap of looking at the past 10 trading days and concluding the S&P 500 index has all the momentum in the world on its side. Taking a step back and looking at the bigger picture serves as a reminder this is far from the case. 

Year-to-date, the S&P 500 index is still down more than 12  per cent which is better than the 15 per cent decline seen in the smaller Dow Jones Industrial Average index which has just 30 components. The Nasdaq index is the best performer of the three majors, down just 5.6 per cent.

The S&P 500 index still has a lot of climbing to do to retest highs and this is all but ruled out for the coming few weeks. Follow the S&P 500 forecast next week and track the US 500 price chart live at Capital.com. 

Read more: Chinese stock market news: stocks to watch in 2020