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According to These Strategists, Here Are the Levels to Watch if the S&P 500 Pullback Continues.

April 22, 2024
minute read

The Cramer curse appears to maintain its undefeated streak, or at the very least, exerts significant influence, as evidenced by Nvidia's stock performance subsequent to commentator Jim Cramer's social media post featuring himself alongside Nvidia CEO Jensen Huang. This observation, credited to the "Inverse Cramer" handle, raises questions not only about the Cramer curse but also about the potential impact of corporate earnings announcements on the broader market, particularly in the realm of artificial intelligence (AI).

The revelation that Super Micro Computer (SMCI) disclosed its earnings reporting date (April 30) without providing any insight into the anticipated results is speculated to have triggered a downturn not only in its own stock but also in other AI-related giants like Nvidia and ARM Holdings. While it remains premature to draw definitive conclusions, this event prompts reflection on the interconnectedness of corporate disclosures and market movements, particularly within tech sectors driven by AI innovations.

Analysts at RBC Capital Markets, led by Lori Calvasina, suggest that the recent market pullback—marked by the S&P 500 closing 5% below its peak on March 28—may persist. One factor contributing to this outlook is the continued bullish sentiment among retail investors over the past four weeks. Although the latest American Association of Individual Investors survey indicates a return to the long-term average of net bullishness, the four-week average remains significantly above this level, indicating sustained optimism in the market.

Similarly, data from the Commodity Futures Trading Commission (CFTC) reveals that positioning in favor of buying across various equity market segments, including S&P 500 and Nasdaq futures, remains notably elevated. Despite a slight rise in market stress indicators like the VIX, they remain historically low. Concurrently, outflows from equity funds suggest a trend towards derisking among investors, reflecting a cautious approach amidst market uncertainty.

From a technical perspective, analysts identify key support levels for the S&P 500 at 4,931 and 4,835. Notably, these levels align with RBC's valuation model, which suggests a fair value of 4,900 for the index under specific economic conditions, including Federal Reserve policy, inflation rates, and treasury yields.

Regarding growth stocks, RBC observes a stronger rate of upward earnings per share revisions for value stocks compared to growth stocks. Moreover, with GDP data on the horizon, analysts anticipate that an economy operating above trend favors value stocks over growth stocks. Despite overall negative fund flows, there is a noticeable shift towards value-oriented cyclical and commodity sectors, indicating changing investor preferences amidst evolving market dynamics.

Market activity over the period also saw shifts away from safer assets, as evidenced by rising U.S. stock futures, declining gold prices, and increasing Treasury yields. Notable developments include Tesla's price cuts for its Full-Self Driving mode in the U.S. and vehicle prices in China and Europe, alongside upcoming earnings reports from major companies like Boeing, Meta Platforms, Microsoft, Alphabet, and Intel.

In legislative news, the House of Representatives approved $95 billion in foreign aid for Ukraine, Israel, and other allies, with provisions potentially impacting companies like TikTok. Additionally, UBS downgraded its rating on the "Big Six" tech companies, anticipating a slowdown in earnings per share growth compared to the broader market.

These collective observations underscore the nuanced interplay between various market factors, investor sentiment, and corporate developments, shaping the trajectory of equity markets in the near term.

Eric Ng
Eric Ng
John Liu
Editorial Board
Bryan Curtis
Adan Harris
Managing Editor
Cathy Hills
Associate Editor

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