S&P 500 continues to trade near record levels ahead of earnings reports

Written by: Stanko Iliev
January 24, 2021
  • For the week, the S&P 500 1.94% and closed at 3,841 points
  • Stock valuations are again at record levels despite the new COVID-19 concerns
  • Apple, Microsoft, and Facebook will report earnings next week

The U.S. stock market advanced in the third trading week of 2021; the S&P 500 (SPX) rose 1.94% and closed at 3,841 points. The S&P 500 posted a new 52-week high and continues to trade in a bull market.

Stock valuations are again at record levels, although new COVID-19 variants and hiccups in vaccine rollouts pose near-term risks. The vaccine immunization will not soon end the Covid-19 crisis, and the risk aversion will likely prevail in the upcoming days.

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The next week’s main event will be the U.S. Federal Reserve monetary policy meeting on Wednesday, and according to estimates, FED will keep its monetary policy unchanged. The U.S. will publish the preliminary estimate of the Q4 Gross Domestic Product on Thursday, which would also influence investor’s mood.

The U.S. President Joe Biden signed several orders last week to boost the fight against the coronavirus, and he said that the government needs to take major action now to help Americans. Investors will also have a focus on the earnings reports next week, led by Apple, Microsoft, and Facebook.

“Stocks have had a great run since October, and you have to wonder with all the talk about the market possibly pulling back, when will it come or what will cause it. Earnings season is heating up as the S&P 500 has risen to records to start 2021, worrying some investors who say corporate results in the coming year will need to justify high stock valuations,” said Robert Pavlik, senior portfolio manager at Dakota Wealth Management.

Good earnings reports would help technology stocks to keep their dominance, but bad results could also add pressure for the S&P 500 index. Analysts expect that Apple will report a 13% rise in quarterly earnings, while Facebook is estimated to report a 25% rise in revenues.

Technical analysis: Positive trend remains intact

The S&P 500 (SPX) has found strong support above 3,700 points, but it is still not able to surpass 3,900 points, which represent the current resistance level.

Data source: tradingview.com

It is also important to say that 3,500 points represent a very strong support level, and as long the price is above this support, there is no indication of the trend reversal. If the price falls below 3,500 points, it would be a firm “sell” signal, and we have the open way to 3,000 points.

Positive earnings reports of technology stocks could help the S&P 500 to advance even more, and if the price jumps above 3,900 points, the next target could be around 4,000 points.

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Summary

The U.S. stock market advanced in the third trading week of 2021; the S&P 500 (SPX) rose 1.94% and closed at 3,841 points. Good earnings reports of technology stocks could help the S&P 500 to advance even more, and if the price jumps above 3,900 points, the next target could be around 4,000 points.