The S&P 500 Index has wavered and is hovering near its all-time high. The next few weeks could be important as top companies report earnings and the odds of a Federal Reserve rate hike decline. The index ended the week at 7,722 points, slightly below its record of 7,817.
Wall Street Analysts Are Bracing for a Strong Earnings Season
The third-quarter earnings season is about to kick off, and analysts expect that it will be another strong one. FactSet (NYSE:FDS) data shows that the average estimate among analysts is that the earnings growth rate will come in at 29.2%. If this is the real figure, it will mark the third straight quarter of earnings growth above 25%.
In reality, however, the final growth rate will be much higher than that. For example, the second quarter growth rate was over 50%, much higher than the expected 28%. This growth rate will be led by companies in energy, technology, communication services, and materials.
Technology companies are reporting strong growth because of the ongoing artificial intelligence boom that has led to a surge demand for equipment. For example, in a statement this week, Micron Technology (NASDAQ:MU) said that its revenue jumped to a record $54 billion in the last quarter. It estimates that its first-quarter revenue will be over $61.5 billion, with its gross margin rising to 86.2%.
Other top technology companies have also published strong financial results lately. Nvidia’s (NASDAQ:NVDA) results showed that its revenue jumped to $104 billion in Q2, with management guiding to a 77% annual growth rate next year. And this week, it unveiled an additional $150 billion share buyback.
Notably, the earnings growth is happening at a time when the index is trading at a bargain. Its forward price-to-earnings ratio moved to just 19, lower than the five-year average of 19.5.
Additionally, the US published mixed macro data this week. The closely watched PCE inflation report rose at a slower pace in August, while the economy created just 29,000 jobs. As a result, the Fed will likely pause its rate hikes this year.
SPX Index Has Formed Bullish Technicals
Technicals suggest that the S&P 500 Index may be on the verge of a breakout. It has formed an inverted head-and-shoulders pattern, which is a common bullish reversal pattern.
At the same time, it has held steady above the 50-day Exponential Moving Average (EMA) and the Supertrend indicator. Therefore, the index may have a strong bullish breakout in the near term. A move past its all-time high will likely drive it to 8,000 by the end of the year, which is in line with Oppenheimer, Barclays, and Goldman Sachs (NYSE:GS) estimates.
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