- S&P 500 Index moves slightly lower during the European session on Tuesday.
- Geopolitical tensions and the path of the Federal Reserve rates will lead the way.
- Today’s focus is on September US retail sales data.
The S&P 500 index moves slightly lower during the European session on Tuesday, ahead of the release of US retail sales data for the month of September. At the time of writing, the index is trading in the area of 4,360 points, losing about 0.25% on the day.
By doing so, the S&P 500 gives back some of the previous day’s gains. Despite escalating geopolitical tensions, the S&P 500 posted gains of 1.06% on Monday.
Market sentiment remains cautious amid the escalation of the war between Israel and Hamas, as the former prepares to carry out a ground attack on Gaza. This could lead to intervention by more Middle Eastern actors, which could escalate the conflict.
In response, US Secretary of State Anthony Blinken said on Monday that President Joe Biden will visit Israel to meet with Prime Minister Benjamin Netanyahu on Wednesday. The US president’s visit to Israel amid the escalating conflict in the region is likely to keep the market in suspense. A new escalation in the war between Israel and Hamas would weigh on market sentiment.
Aside from geopolitical tensions, markets are awaiting the speech by Fed President Jerome Powell, scheduled for Thursday before the Economic Club of New York.
Investors will be watching to see whether Powell joins other Fed officials in supporting keeping interest rates unchanged for the second time in a row as US Treasury yields rise. Market participants expect Powell to lean toward neutral monetary policy and join other Fed officials who recently asserted that higher bond yields are enough to tame inflation.
San Francisco Fed President Mary Daly suggested the recent spike in long-term bond yields is equivalent to a 25 basis point rate hike, while Philadelphia Fed President Patrick Harker said on Monday that the central bank should not place new pressures on the economy by further increasing borrowing costs. Harker reiterated that the Fed is done raising interest rates in an environment where inflationary pressures are easing.
The lack of clear guidance from the Fed on interest rates weighs on market sentiment and contributes to investor indecision.
According to the CME Group’s Fedwatch tool, traders see a 90% chance that the Fed will keep interest rates unchanged at 5.25%-5.50% at the Nov. 1 meeting. Meanwhile, the odds of a further interest rate hike at the December meeting stand at 35%.
Frequently asked questions about the S&P 500
What is the S&P 500?
The S&P 500 is a widely followed stock index that measures the performance of 500 public companies and is considered a broad measure of the U.S. stock market. The influence of each company in the calculation of the index is weighted based on market capitalization. This is calculated by multiplying the number of listed shares of the company by the share price. The S&P 500 Index has achieved impressive returns: $1.00 invested in 1970 would have produced a return of almost $192.00 in 2022. The average annual return since its inception in 1957 has been 11.9%.
How are companies chosen to be included in the S&P 500?
Companies are selected by committee, unlike other indices where they are included based on established standards. Still, they must meet certain eligibility criteria, the most important of which is market capitalization, which must be equal to or greater than $12.7 billion. Other criteria are liquidity, domicile, market capitalization, sector, financial viability, listing time, and representation of the sectors of the United States economy. The nine largest companies in the index represent 27.8% of the index’s market capitalization.
How can I trade the S&P 500?
There are several ways to trade the S&P 500. Most retail brokers and spread betting platforms allow traders to use Contracts for Difference (CFDs) to place bets on price direction. In addition, you can buy index funds, mutual funds and exchange-traded funds (ETFs) that track the price of the S&P 500. The most liquid of the ETFs is the London Stock Exchange ETF. The most liquid of the ETFs is State Street Corporation’s SPY. The Chicago Mercantile Exchange (CME) offers futures contracts on the index and the Chicago Board of Options (CMOE) offers options, as well as ETFs, inverse ETFs, and leveraged ETFs.
What factors drive the S&P 500?
There are many factors that drive the S&P 500, but primarily it is the aggregate performance of its component companies, revealed in their quarterly and annual earnings reports. US and global macroeconomic data also contribute, influencing investor sentiment, which if positive, drives earnings. The level of interest rates, set by the Federal Reserve (Fed), also influences the S&P 500, as it affects the cost of credit, on which many companies largely depend. Therefore, inflation can be a determining factor, as well as other parameters that influence the decisions of the Federal Reserve.
Aside from the geopolitical front and the path of the Fed’s rates between now and the end of the year, the focus on Tuesday will also be on the US retail sales data for September, which constitute one of the main indicators of the consumer spending, the main driver of the US economy. Investors expect sales to grow at a slower pace than the previous month despite rising gasoline prices (retail sales data is not adjusted for inflation and therefore reflects price changes). Retail sales are expected to rise 0.3% in September, down from the 0.6% increase recorded in August. On the other hand, retail sales excluding vehicles are expected to increase 0.2%, down from 0.6% growth in the previous month.
S&P 500 technical levels
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
