September 9, 2022
SPX: The oversold equity rally continues with the S&P 500 (SPX) currently trading above pattern resistance in the ~4020-4040 range. A close above that level would open the door for a test of the pre-Jackson Hole level of ~4200. Stronger secondary resistance sits in the 4280-4320 range with a breakout conditional on a shift in macro fundamentals, specifically terminal Fed rate expectations. A softer August CPI print (next Tuesday) could pull terminal rate expectations back from current levels near 4%, but it would have to be a pretty big miss to push the SPX through ~4300.
De-risked? Out-year estimate cuts usually occur after CQ2 earnings season. We suspect these downside earnings revisions are partially responsible for September seasonal weakness. We also suspect this year might be different as estimate cuts began much earlier than usual, starting just after CQ1 results in April/May. We see the potential for the post-Q2 revisions to serve as a clearing event for equities to lift as 2023 estimates appear fully de-risked. The bar for Q3 earnings season also seems quite low with bottoms-up estimates down -5.4% since the start of the quarter vs. the 20-year average of -2.9%.