The S&P 500 (SPX) has pulled back this month after hitting key resistance at 7,817, as investors weigh a strong earnings season, rising crude oil prices, and elevated US Treasury yields. The index is now 2.45% below its all-time high.

Earnings Season Has Started Well, But Risks Remain

The S&P 500 Index retreated even as major American companies posted strong results. FactSet (NYSE:FDS) data shows that 9% of index constituents have reported so far, with average earnings growth of 29%. If that rate holds, it will mark the third straight quarter of earnings growth above 25%.

The final growth figure will likely come in higher, since most technology companies have yet to report. Companies due to release results in the coming weeks include SpaceX, GE Aerospace, Netflix, Meta Platforms, and T-Mobile. For comparison, S&P 500 earnings growth topped 50% in the second quarter.

The challenge, however, is that the index is facing other challenges, including the rising oil prices as the crisis in the Middle East escalates. Brent has jumped to $110, while the West Texas Intermediate has crossed the $100 level. Gasoline and diesel prices have continued rising. 

These numbers mean that consumer and producer inflation will remain elevated. Data released this week showed that consumer inflation jumped 3.7% in September, moving further from the Fed’s target of 2.0%. 

Higher inflation means that the Fed may be forced to hike interest rates later this year. All this is happening as US bond yields remain at an elevated level, with the five-year hovering at its highest level in nearly two decades.

The index is also confronting the rising fears that the AI bubble may burst soon. Anthropic’s valuation has been slashed after the company’s third-quarter revenue growth came short of expectations. OpenAI’s annualized revenue was about $20 billion lower than expected. In a report this week, Gartner estimated that AI infrastructure companies will have substantial impairments in the next few years.

S&P 500 Index Has Hit a Crucial Resistance

SPX Index chart | Source: TradingView

Technically, the SPX Index has hit a major barrier at 7,817, its highest point on August 13 and on October 8. It has formed a double-top pattern and a neckline at 7,512, its lowest level on September 16. This pattern often leads to a bearish reversal.

The two lines of the MACD indicator have formed a bearish crossover and are pointing downwards. These technicals suggest that it may drop further in the near term. If this happens, it may drop to the neckline of 7,512 points followed by the 200-day moving average of 7,312.

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