US Stocks Ready To Rally Amid Earnings Optimism: Analyst Sees Upward Momentum On 'Outlier' S&P 500 Returns

The positive mood seen in late trading on Monday appears to be spilling over into Tuesday’s session, with futures pointing to a higher open. A slew of bank earnings, energy prices and a housing market reading are all in the mix, as traders position themselves for the earnings season.

Cues From Monday’s Trading:

After trading in a lackluster manner for the bulk of Monday’s session, stocks staged a modest recovery, aided by a late-hour buying surge. The reversal in fortunes came about as traders digested some positive bank earnings. The skittishness seen earlier in the session was due to rate worries after a regional manufacturing survey showed an unexpected expansion by the sector. Strong data invariably raises the specter of 'higher rates for longer.

With Monday’s advance, the S&P 500 Index settled at the highest level since Feb. 9.

Real estate and financial stocks were among the best performers of the session, while communication services and energy stocks acted as drags.

Analyst Color:

Adam Turnquist, the chief technical strategist at LPL Financial, delved into the likelihood of the continuation of the recent market rally.

The S&P 500 is coming in hot to the first-quarter earnings season, having returned 5% over the past months, said Turnquist. This marked one of the biggest rallies into a reporting period since 2000, he added.

Looking at precedence, the analyst noted that since 2000, there have been 27 other quarters when the S&P 500 rallied at least 3% four weeks before the start of earnings season. “These outlier returns historically point to continued upside momentum for the index after the kickoff of earnings season, albeit at a moderated pace,” he said.

The average and median seven-week returns – marking the bulk of the earnings season, were 1.4% and 3.1%, respectively, the analyst said. He sees key upside resistance for the S&P 500 Index at 4,200.

While noting that the S&P 500 short futures positions are running at their highest level since September, Turnquist said a breakout above this level could trigger a short covering rally toward the August highs at 4,300.

On the downside, the index has support at its November highs around 4,080 and the 20 displaced moving average at 4,044, he said.

Futures Today

In premarket trading on Tuesday, the SPDR S&P 500 ETF TrustSPY rose 0.38% to $415.53 and the Invesco QQQ TrustQQQ moved up 0.60% to $320.74, according to Benzinga Pro data.

Upcoming Economic Data:

The Commerce Department is scheduled to release its housing starts report for March at 8:30 a.m. EDT. Economists expect housing starts to edge down from 1.550 million units in February to 1.450 million units in March. Building permits, a measure of future housing activity, may have also slipped from 1.450 million units to 1.40 million units.

The Treasury is set to auction 52-week bills at 11 a.m. EDT.

Federal Reserve Governor Michelle Bowman is scheduled to speak at 1 p.m. EDT.

See also: Best Futures Brokers

Stocks In Focus:

• Bank of America Corp. BAC, Bank of New York Mellon Corp. BK, Goldman Sachs Group, Inc. GS, Johnson & Johnson JNJ and Lockheed Martin Corp. LMT are among the companies reporting before the market open.
• First Horizon Corp. FHN, Intuitive Surgical, Inc. ISRG, Netflix, Inc. NFLX and United Airlines Holdings, Inc. UAL are among the notable companies reporting after the market close.

Top Analysts’ Call

• Sunrun, Inc. RUN: KeyBanc upgrades from Sector Weight to Overweight with a $29 price target
• First Solar, Inc. FSLR: KeyBanc downgrades from Overweight to Sectorweight
• Plug Power, Inc. PLUG: KeyBanc downgrades from Overweight to Sectorweight
• Charles Schwab Corp. SCHW: BofA maintains underperform rating and lowers price target from $53 to $51
• Nvidia Corp. NVDA: HSBC upgrades from Reduce to Buy

Commodities, Bonds, Other Global Equity Markets:

Crude oil futures were seen extending their Monday’s 2% pullback, as they traded down 0.32% to $80.57 in early European session on Tuesday.

The yield on the benchmark 10-year U.S. Treasury note edged up 0.008 percentage points to 3.583%.

The Asian markets ended Tuesday’s session mostly lower, with the Japanese, Indonesian and Chinese markets bucking the downtrend. Data out of China showed that first-quarter GDP growth came in at a year-over-year rate of 4.5%, ahead of the consensus and the fourth quarter’s 2.9% growth.

European stocks were seen rebounding from their Monday losses and traded higher in late-morning trading.

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