Here are the S&P 500 levels to watch if the pullback continues

By Steve Goldstein

Critical information for the U.S. trading day

The Cramer curse looks to be undefeated, or at the very least, a very powerful force, judging by Nvidia's stock price after the CNBC commentator posted a photo of himself with Nvidia CEO Jensen Huang (chart credit to the Inverse Cramer handle).

Apart from the Cramer curse, it's also possible to wonder if the AI bubble was popped by a company releasing a date for its earnings. It's too early to say for sure, but Super Micro Computer (SMCI) announcing when it was reporting results (April 30) without giving an inkling of what those results were, took down not just its own stock but that of other AI-fueled juggernauts, like Nvidia (NVDA) and ARM Holdings (ARM).

Strategists at RBC Capital Markets led by Lori Calvasina argue the pullback - the S&P 500 SPX closed 5% below its March 28 peak - may not be over.

One reason: retail investors, over the last four weeks, are still bullish. The latest reading of the American Association of Individual Investors investor sentiment survey has net bullishness returning to its long-term average, though the four-week average is still about one standard deviation above that.

"That's a better range for stocks, to be sure, on a go-forward basis than where we were a few weeks ago, but is still well above the level seen last year in late October when this indicator fell to one standard deviation below the long-term average," they say.

Along similar lines, CFTC data shows "positioning on the buyside for the broader U.S. equity market, S&P 500 futures, and Nasdaq futures hasn't fallen much and is still sitting at extreme highs." Market stress indicators like the VIX have risen but are quite low relative to history.

Outflows from equity funds are suggestive of derisking behavior.

Technicals suggest the next major level to watch on the S&P 500 is 4,931, followed by 4,835, they say. "That's interesting to us because our valuation model has pointed to 4,900 as fair value for the S&P 500 if the Fed doesn't cut again this year, inflation is stickier than anticipated with PCE around 2.8% at year- end, and 10-year yields end the year at 4.75%, far more elevated than most forecasters anticipated to start the year but still below last year's 5% peak," says Calvasina and team.

As for the growth names in particular, which RBC has been pessimistic about for some time, they note the rate of upward [earnings per share] revisions is actually stronger for value stocks now. With GDP data due later in the week, the strategists point out that an economy running above trend tends to be better for value than growth. And while fund flows at net have been negative, there have been improving flows to more value-oriented cyclical and commodity sectors.

The market

There was a bit of a shift away from safer assets as U.S. stock futures (ES00) (NQ00) rose, gold (GC00) fell, and Treasury yields BX:TMUBMUSD10Y rose.

The buzz

Tesla (TSLA) shares fell 4% as it cut prices of Full-Self Driving driver-assistance mode in the U.S., and it cut prices on vehicles in China and Europe over the weekend.

Tesla is due to report results after the close on Tuesday, in a huge week for earnings that also include Boeing (BA), Meta Platforms (META), Microsoft (MSFT), Alphabet (GOOGL) and Intel (INTC).

Verizon (VZ) lost fewer subscribers than forecast.

Salesforce (CRM) could not agree with Informatica (INFA) on deal terms, according to reports, sending Informatica stock 6% lower.

The House of Representatives over the weekend agreed on $95 billion in foreign aid for Ukraine, Israel and other allies, with the legislation expected to be approved in the Senate. The legislation also would force TikTok into a sale or closing down in the U.S. in a year.

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Top tickers

Here were the most active stock-market tickers as of 6 a.m. Eastern.

   Ticker  Security name 
   NVDA    Nvidia 
   TSLA    Tesla 
   SMCI    Super Micro Computer 
   AMC     AMC Entertainment 
   TSM     Taiwan Semiconductor Manufacturing 
   AAPL    Apple 
   NIO     Nio 
   GME     GameStop 
   DJT     Trump Media & Technology 
   AMD     Advanced Micro Devices 

The chart

UBS cut its rating on what it calls the Big Six - that's the Magnificent Seven minus struggling Tesla - to neutral from overweight. Strategists led by Jonathan Golub note the grouping of Alphabet, Amazon, Apple, Meta Platforms, Microsoft and Nvidia has already dropped 8% from its April peak, having soared 117% from its Jan. 2023 lows. The reason for the downgrade is that earnings per share growth is set to slow down, while it's going to accelerate for the rest of the market.

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-Steve Goldstein

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04-22-24 0851ET

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