More than one third (35%) of the S&P 500 reports earnings next week, including Microsoft, Alphabet, Meta Platforms and Amazon.
In 2023, Alphabet and Microsoft stocks are both up +19%. Meta is up 77% and Amazon is up 27%. This suggests that earnings for these large cap stocks are going to be relatively good and will likely meet expectations.
EPS Cuts Ahead
With the Conference Board’s Index of Leading Economic Indicators as weak as it is, and with bank lending slowing down, we will likely see more EPS forecast cuts ahead.
Sell In May and Go Away
Not only do we have a tightening monetary policy from the Federal Reserve to combat inflation that is still too high, we also have EPS revisions being cut from the economy slowing down. If that wasn’t enough, we also have a battle over the debt ceilingThe debt ceiling is a statutory limit on the amount of money the federal government can borrow. It is set by Congress and imposed by the U.S. Treasury. coming fast. Economists at Goldman Sachs think that the debt limit will be hit in the first half of June rather than August as was originally predicted.
If all of that wasn’t enough, we also have the seasonally weakest time of year for the stock market upon us which goes from May thru October.
Bull markets climb walls of worry but not usually during the weakest 6 months of the year.
Is a Downward Swing Upon Us?
What we could see happen is a downward swing that lasts about a month. Looking at the chart of SPY, you can see these nice predictable one month swings back and forth. At the very least, we seem to be due for a downward swing which would time perfectly with the Sell In May seasonal trend.