Note: Our daily “S&P 500 Outlook, Forecast, and Trading plan for Monday, 10/22” will be posted around 8:30am EDT, Monday.

THE GIST (“THE WHAT”)

Gaining a bullish momentum at the open on the back of strong quarterly earnings, the S&P 500 index soon lost steam on registering the day’s high at 2797.77 as confidence was eroded following weaker-than-expected economic data. Bouncing on the 200 DMA and fluctuating between small gains and losses, the index closed flat at 2767.78, down only 1 point over previous day’s close.

Snapping 3 week’s losses, the index consolidated between psychologically important 2800 level and the key technical support level of its 200 DMA (now at 2768.24). Sector rotation was quite evident, with investors moving out of cyclical and growth stocks towards defensive and value stocks amid uncertainties surrounding trade policies, rising yields and concerns of slowing global economic growth. 
Following the worst week since March 2018, the index barely moved this week, up only 0.02%, albeit with a whipsaw price action and closing 4 out of the 5 sessions in red. This week also saw the 20 DMA cross below the 50 DMA (now at 2869.41), for the first time since February 23, 2018.

THE DETAILS (The “How & Why”):

Weaker-than-expected existing-home sales data confirmed the slowing demand in the housing market. Existing-home sales in the month of August fell 3.4%, reaching its lowest levels in 3 years. Separately, Retail sales rose 0.1% as against the expected 0.6% rise.
Technology stocks were punished over the last 2 weeks as investors gave up growth and cyclical stocks in favor of value and defensive stocks in the wake of several uncertainties surrounding trade, rising yields and slowing Chinese demand.
While the sector gained a positive momentum at the open following strong results by PayPal Holdings Inc. and Apple Inc.’s stock upgrade, Advanced Micro Devices Inc. led the chip stocks lower, tumbling 11.12% following a bearish outlook by an analyst. The sector erased early session’s strong gains to close the session relatively unchanged for the day, but down 1.17% on a weekly basis.
Defensive sectors were the best performers in today’s session, led by Consumer Staples. Procter & Gamble Company’s soared 8.80% following strongest sales growth in nearly 5 years. Retail and department stocks rose broadly to lift the Consumer Staples sector by 2.31%. The sector was the best performer this week with a solid 4.27% gain. Utilities and Real Estate were also strong gainers for the week, up 3.05
% and 3.22%. While Health Care shed 0.95% in today’ session, the sector gained 0.45% for the week.
With big banks earnings in focus, Financials stocks were modest gainers, up 0.77% on a weekly basis. Synchrony Financial and American Express Co. were the top gainers within the sector, gaining 5.80% and 3.78% respectively on beating earnings estimates. Treasury yields edged slightly higher on the back of a hawkish comment from Federal Reserve earlier this week. The 10-year Treasury yield settled at 3.196%.
On the other hand, Consumer Discretionary and Technology were the worst performing sectors, down 1.97% and 1.17% on a weekly basis, weighed down by losses in large-cap tech companies and FAANG stocks. Investors perceive these companies to be overvalued in the wake of rising yields and continue to shed them in favor of defensive stocks.
Downgrades by several analysts of chip stocks, citing a slowing demand in China kept semiconductor industry under pressure this week. Materials, Industrials and Energy sectors were other notable laggards, down 1.35%, 1.02% and 1.94% on a weekly basis.