Enjoy the rally in the S&P 500 while you can is the Credit Suisse `house view’ because winter is coming
Stock markets “look set for a short-term recovery and a slightly longer period of consolidation in our view following last week’s anticipated rebound from key levels,” London-based Credit Suisse technical analysts led by David Sneddon wrote Monday.
Stocks “rebounded strongly” late last week “after failing to sustain a break below the short-term uptrend from June, reinforcing our call for a short period of consolidation.”
The S&P 500’s next resistance level is 4120, right around where it’s trading Monday morning, Credit Suisse said. Even more important resistance next comes in to play around 4150-4158, which is the top end of the 3950-4150 range that CS sees for the current market.
“Post this potential consolidation phase, our core outlook stays negative and we look for an eventual clear break below the uptrend from June, with support seen next at 3861, ahead of the potential uptrend from the March 2020 low at 3830. Big picture, we continue to look for an eventual move back to the YTD low at 3637 and beyond,” the CS chart watchers warned.
As a result, the Credit Suisse “house view is negative on the S&P 500 on a 3-6 month horizon.”
–Scott Schnipper; CNBC’s Michael Bloom contributed
Stocks extend gains
The major averages built on their opening gains, and all three are up more than 1%.
The Dow is now up more than 300 points, and its top performers include American Express, Apple, Chevron and 3M.
Corporate profits will only get worse from here, Fitch Ratings warns
Forty percent of stocks in the S&P 1500 index (that’s the S&P 500, S&P Midcap 400 and S&P Smallcap 600) had lowered their current year earnings forecasts as of August 29, up from 28% at the same time last year, according to a Friday report from Fitch Ratings, citing FactSet numbers.
“EBITDA growth softened a bit in 2Q22,” wrote analysts led by Carla Norfleet Taylor. “Downward revisions to consensus expectations for 2023 have been slow but will likely accelerate as monetary tightening continues in order to reduce inflation and slow economic growth.”
Fitch expects that the state of “corporate profitability will likely be a leading indicator of the impending recession. We anticipate earnings will increasingly weaken ahead of the official declaration of a downturn.”
Fitch also looked at Bureau of Economic Analysis data to gauge the performance of earnings in similar environments and found corporate profits fell an average of four quarters prior to past downturns. “The peak-to-trough decline in after-tax profits during the last 12 recessions averaged 19%, with revenue and margin declines varying across sectors. After-tax profits as a percentage of GDP declined by an average of 3%.”
— Scott Schnipper
Stocks open higher
The three major averages rose at the open, with the Dow gaining about 120 points, or 0.4%. The S&P 500 and Nasdaq Composite climbed about 0.6% each.
Ukraine takes back territory from Russia
A counterattack by Ukraine in recent days has put the Russia military on its heels and allowed the Ukrainian army to reclaim key territory in the eastern part of the country.
The Ukrainian Defense Ministry said Sunday that it has taken back many villages and towns around Kharkiv, the nation’s second largest city. The move appears to have put some Russian forces in retreat.
“In the face of Ukrainian advances, Russia has likely ordered the withdrawal of its troops from the entirety of occupied Kharkiv Oblast west of the Oskil River,” the United Kingdom’s Ministry of Defense said on Twitter. “Ukraine has recaptured territory at least twice the size of Greater London.”
To be sure, the Institute for the Study of War said that the current offensive would not be enough to end the war.
—Jesse Pound, Holly Ellyat
Dollar weakness can help stocks bounce, Siegel says
Wharton professor Jeremy Siegel said on “Squawk Box” that he thinks the stock market could see some upside surprises from here, and one of the main reasons for that is weakening US dollar.
The greenback has slipped over the past week, especially against the euro, as the European Central Bank announced a large rate hike and signaled that more hawkishness is ahead.
“The ECB being more aggressive means the dollar can go down. It really it has gone down. That’s very, very important in terms of the foreign earnings,” Siegel said.
Inflation has peaked, says JPMorgan
JPMorgan pointed to falling gas prices as an indication that inflation will slow in coming months. “In terms of inflation outlook, we expect a further confirmation of a peak, and a move lower, as US gasoline prices are down 20% from highs, and Brent has stalled below $100,” the firm said Monday in a note to clients.
Energy prices have been a key driver of inflation after Russia’s invasion sent global energy prices surging.
The national average for a gallon of regular gasoline hit a record above $5 in June. But since then, a retreat in oil prices has brought down prices at the pump. The national average stood at $3,716 on Monday, according to AAA.
“[F]all commodity prices might be welcomed, as they work to reduce one of key headwinds, the inflationary pressure,” the firm added.
Weakening earnings will likely weigh on stocks, Adam Parker says
Corporate earnings estimates are still too high, and that presents more downside risk for stocks, according to TriVariate Research founder Adam Parker.
The second quarter earnings season was a mixed bag for Wall Street, with notable weakness in parts of the retail and tech sectors even as overall numbers largely held up. However, that bright side may soon disappear, Parker said.
“The key things to watch will be any signs of margin erosion or inventory builds in the October earnings season. Our suspicion is that a combination of estimate reductions and a hawkish Fed will make for choppy and a potentially lower equity market over the coming weeks, “Parker wrote in a note to clients on Sunday.
Parker’s base case for downside risk is around 3,700 on the S&P 500, which would be about a 7% decline from here.
Disney shares higher in premarket trading
Activist investor and Third Point hedge fund manager Dan Loeb indicated in a tweet that he’s going to no longer push Disney to spin off ESPN.
Loeb’s reversal comes after he took about a $1 billion stake in Disney in the second quarter. Disney’s shares have rallied about 16% the last three months. Disney CEO Bob Chapek told journalists at this weekend’s D23 Expo that he has big plans for ESPN.
The shares were up another 0.7% in premarket trading Monday.
Biden administration to broaden curbs on US semiconductor exports to China, report says
The White House has plans to expand curbs on US shipments to China of chips used for artificial intelligence and chipmaking tools, Reuters reported citing people familiar with the matter.
According to the report, the Commerce Department aims to publish regulations based on ruled communicated to KLA, Lam Research and Applied Materials. Shares of the three chipmakers dipped in the premarket.
A Commerce Department spokesperson declined Reuters’ request to comment on specific regulations, but note that it is “taking a comprehensive approach to implement additional actions…to protect US national security and foreign policy interests.”
The White House, Applied Materials, KLA and Lam did not immediately respond to CNBC’s comment requests.
It’s time to buy Carvana, Piper Sandler says
Piper Sandler upgraded struggling Carvana shares to overweight from neutral, saying the stock is too cheap for investors to ignore.
“We know that rising interest rates are a risk, and we know that bankruptcy is a real possibility. But CVNA is now 1/10th as valuable as it was 12 months ago, and after running a detailed sensitivity analysis, we think many realistic scenarios suggest that CVNA is grossly undervalued,” analyst Alexander Potter said in a note.
Carvana shares popped 7% in the premarket.
CNBC Pro subscribers can read the full story here.
—Sarah Min, Fred Imbert
Euro climbs to 3-week high against the US dollar
European markets rise
European stocks advanced on Monday, following a positive trend set at the end of last week and overnight in Asia-Pacific markets.
The pan-European Stoxx 600 climbed 0.9% in early trade, with retail stocks adding 2.7% to lead gains as almost all sectors and major Bourses entered positive territory. Health care stocks fell 0.3%.
European stocks took heart last week from the hawkish tone struck by the European Central Bank on monetary policy. Policymakers opted for a record hike to interest rates as they try to rein in record high inflation in the 19-member euro zone. The momentum for stocks and the euro continued on Monday.
Traders see 90% chance of another 75-basis-point Fed hike in September: FedWatch
The probability of the US Federal Reserve hiking interest rates by another 75 basis points at its September meeting moved to 90%, according to the CME Group’s FedWatch tracker of fed funds futures bets.
That’s up from last week’s 82% probability for a three-quarter point hike.
The chance for a 50-basis-point hike now stands at 10%, FedWatch showed.
CNBC Pro: Sterling has been tanking versus the dollar. Here’s how low it could go, according to the pros
US to broaden curbs on chip and tool exports to China, Reuters reports
The US Department of Commerce plans to publish new regulations related to restricting exports of chipmaking equipment to Chinese factories that produce advanced semiconductors, Reuters reported, citing people familiar with the matter.
The rules will be based on letters sent to KLA, Lam Research and Applied Materials earlier this year, when they were informed that government-issued licenses would be needed to sell such equipment to buyers that make chips with sub-14 nanometer processes.
The new regulations would likely include additional actions against China, sources told Reuters, adding they could be changed and published later than expected.
CNBC Pro: Goldman reveals the ‘sweet spot’ for its favorite oil stocks — and gives one 35% upside
Oil prices slip after volatile week
Oil prices were lower Sunday after energy markets whiplashed last week. Prices have been weighed down by rising interest rates and the potential curbed demand due to Covid lockdowns in China.
West Texas Intermediate fell 0.29% to $86.54 a barrel. Brent crude dipped 0.17% to $$92.68 a barrel.
Last week, oil prices rose slightly when Russia’s Vladimir Putin threatened to halt oil and gas exports to Europe if price caps are imposed. In addition, a small cut to OPEC+ oil output plans also supported prices.
Still, oil prices fell on the week.
Stock futures are higher ahead of inflation report Tuesday
Stock futures rose Sunday night as Wall Street looked to continue last week’s rally ahead of a key inflation report set to be released Tuesday.
Dow Jones Industrial Average futures rose 91 points, gold 0.29%. S&P 500 and Nasdaq 100 futures climbed 0.32% and 0.41%, respectively.