Inside Markets — SPX Levels

Yesterday’s sell-off stayed contained within the April 9 bullish outside day with the SPX opening low ~4950 serving as our near-term retest level. Reflex rallies are common in bear markets and today’s rebound doesn’t change the technical picture that caps upside in the 5396-5650 range. In our view, a break above that range requires resilient macro data, better-than-feared Q1 earnings season and the framework for a completed trade deal. As of now, the first two conditions seem to be in place, but time is of the essence. Growth data that leans toward a recessionary outcome will pressure the index toward the lower end of the 4/9 reversal (4950) with weak labor market data potentially generating a downside break to ~4100-4500.

Q1 earnings season ramps with 27% of S&P500 companies reporting this week. Consensus estimates for the quarter have fallen by a meaningful amount creating a lower bar that can likely be beaten. Consumer trends remain resilient, and Corporate America has levers to mitigate EPS downside in the near term. The focus will be on guidance and management commentary as earnings calls become an opportunity to cut outlooks/suspend guidance. Full year SPX EPS estimates are down 2% YTD, which implies a growth rate of 11% and it is reasonable to expect further contraction the longer tariff uncertainty remains in place.

Positioning in US equities is extremely light with sidelined cash at a record high and net hedge fund positioning in the eighth percentile. AAII bearish sentiment remains at extremes after reaching its second highest level in history (61.9) just two weeks ago. The record for bearish sentiment (70.27) was taken during the week ending 3/5/09, which was just four days before the SPX bullishly reversed for a one-year return of +83%.