S&P 500 weekly report: growth stocks outperform as Wall Street diverges

Growth-value divergence widens on Wall Street

Wall Street began the week with a widening divergence between growth and value stocks. The Nasdaq 100 surged to a fresh record high, while the value-oriented Dow Jones Industrial Average (DJIA) registered its eighth consecutive day of losses.

Positive year-end seasonality may generally leave some optimism for the bulls, yet some near-term caution may loom in the lead-up to the upcoming Federal Reserve (Fed) meeting this week. A 6.5% rise in the VIX overnight suggests increased hedging activity, as market participants brace for policy signals from what could be the final major risk event of 2024, likely setting the market tone heading into the year-end.

What to expect from the Federal Open Market Committee (FOMC) meeting this week?

Market expectations are firmly aligned for the Fed to cut its federal funds rate by 25 basis points (bp) this week, bringing the target range to 4.25%-4.5%. This would mark the third consecutive rate reduction in 2024. The move appears motivated by a desire to gradually return rates to neutral (likely around 3.0% based on the Fed’s long-term rate projections), as the unemployment rate trends higher, while the persistent lack of progress on inflation likely justifies a measured approach for now.

New York Stock Exchange

Potential hawkish signals and market impact

Looking ahead, market focus will centre on whether the Fed delivers a 'hawkish cut' this week, as policymakers may likely signal a more cautious stance on rate adjustments for 2025. This comes against a backdrop of above-target inflation, economic resilience, and uncertainty surrounding Trump’s policy agenda.

Key insights will be drawn from the Fed’s updated dot plot and economic projections, which could signal a shift toward a more conservative rate-cutting cycle—perhaps from four cuts to three—aligned with current market rate pricing. Upward revisions to inflation and growth forecasts will also be closely watched, potentially reinforcing the need for patience in delivering future cuts.

Opportunities amid potential market reactions

Any hawkish tilt from the Fed could spark a knee-jerk downside reaction in US equities. However, we believe such pullbacks may present opportunities for dip-buying, given historical market strength during periods of rate holds, prevailing fundamentals pointing to a soft landing, and US economic resilience relative to its global peers under a Trump administration.

Potential hawkish signals and market impact

Looking ahead, market focus will centre on whether the Fed delivers a 'hawkish cut' this week, as policymakers may likely signal a more cautious stance on rate adjustments for 2025. This comes against a backdrop of above-target inflation, economic resilience, and uncertainty surrounding Trump’s policy agenda.

Key insights will be drawn from the Fed’s updated dot plot and economic projections, which could signal a shift toward a more conservative rate-cutting cycle—perhaps from four cuts to three—aligned with current market rate pricing. Upward revisions to inflation and growth forecasts will also be closely watched, potentially reinforcing the need for patience in delivering future cuts.

Opportunities amid potential market reactions

Any hawkish tilt from the Fed could spark a knee-jerk downside reaction in US equities. However, we believe such pullbacks may present opportunities for dip-buying, given historical market strength during periods of rate holds, prevailing fundamentals pointing to a soft landing, and US economic resilience relative to its global peers under a Trump administration.

S&P 500: stuck in a near-term range, but the broader upward trend remains

The rally in the S&P 500 has paused lately, as risk-taking has not been broad-based, with value stocks trailing behind growth, keeping the index in a near-term range. However, on a broader scale, a rising channel pattern remains in place, while the index continues to trade above various trend indicators such as its daily Ichimoku Cloud and moving averages (MA) (50-day, 100-day, 200-day). Its daily relative strength index (RSI) has been trading above its mid-line at the 50 level as well, which keeps buyers in control.

Near-term support and longer-term targets

In the near term, a secondary upward trendline at the key psychological 6000 level may be watched as immediate support to hold. Failing to hold the trendline could pave the way for a deeper retracement towards the 5861 level next, where a support confluence stands. The longer-term price target for the S&P 500 may be at the 6420 level, where a potential Fibonacci extension level stands.

Key levels:

• R1: 6235
• R2: 6420
• S1: 6000
• S2: 5861

S&P 500 daily chart

Growth stocks gain traction

Sector performance over the past week suggests that while investors remain comfortable adding risks to their portfolios, the bulk of the traction has been heavily concentrated around growth stocks. The ratio between the S&P 500 value index and the S&P 500 growth index is currently at its lowest level since January 2022, revealing a clear preference for growth over value.

Quantum computing breakthrough sparks tech rally

Optimism around Google’s new Willow chip as a breakthrough in quantum computing may be a key driver for recent tech outperformance, with its promise to increase computing speeds while limiting mistakes likely to set off another tech race for dominance in the area, as investors once again position themselves for potential paradigm shifts in technology-driven productivity gains across sectors.

Mega-tech companies see strong performances

• Alphabet Inc: share price increased by 12.1% over the past week
• Tesla: share price rose by 18.8%
• Broadcom: share price surged by 39.7%
• NVIDIA: share price decreased by 4.9% due to year-end profit-taking after a 174% rally this year
• Microsoft: up by 1.3%
• Apple: increased by 1.7%
• Meta: gained 1.7%
• Amazon: rose by 3.0%.

SPX sector returns: one-week and one-month

SPX sector returns: one-month and year-to-date

Sector ETFs summary
*Note: the data is from 10–16 December 2024

Top 15 winners and losers
*Note: the data is from 10–16 December 2024

Top stocks by sectors
*Note: the data is from 10–16 December 2024