Wall Street: US equity markets surge on bullish momentum; eyes on retail sales report for December

US equity markets rediscovered their bull market mojo last week, supported by increasingly aggressive expectations of Fed rate cuts. The Nasdaq surged 3.23% for the week, while the S&P 500 added 1.84%, and the Dow Jones finished 0.34% higher.

Following Friday night's softer-than-expected PPI data (-0.1% vs 0.1% exp), two-year yields dived to finish 23 basis points (bp) lower at 4.15%. There is now an 80% chance of a Fed rate cut priced for March, and a total of 167 bp of rate cuts priced for 2024.

Friday night's bank earnings reports received a mixed reception. Wells Fargo (-3.34%), Bank of America (-1.06%) and JP Morgan (-0.73%). While Citigroup climbed 1.04% to $52.62 on the news, it will trim its workforce by 10% to boost returns. US Q4 earnings season continues this week, with reports scheduled from companies including Goldman Sachs, Morgan Stanley, Interactive Brokers, Charles Schwab, and Alcoa.

Aside from earnings reports, there will be interest in the latest retail sales report for December, the Michigan consumer sentiment for January and speeches from Fed members, including Waller, Williams, Barr, Daly, and Bostic - who may attempt to push back on expectations of rate cuts in March.

What is expected from the December retail sales report? (Thursday 12.30 am AEST)

Following a gain of 0.3% MoM in November, the market is looking for retail sales to gain 0.3% in December. Retail sales, excluding volatile motor vehicles and parts are expected to increase by a subdued 0.2% MoM.

S&P 500 technical analysis

While the S&P 500 cash made a marginal new high last week, the view remains that the advance from the October low is in the terminal stages based on our Elliott Wave count and bearish RSI divergence.

As such, we remain neutral/cautious at current levels, watching for a break of support at 4675 (just below last week's lows), which would warn that a deeper pullback towards support at 4600/4550 is underway.

S&P 500 daily chart

Nasdaq technical analysis

The Nasdaq followed the road map to perfection during the second half of 2023, bottoming as expected in the 14,200/14,000 support zone before a stunning rebound to new highs.

The updated view is that the advance from the October low is in the terminal stages based on our Elliott Wave count, and as such, we remain neutral/cautious at current levels. A sustained break below support at 15,900/15,800 would warn that a deeper pullback initially towards the 200-day moving average at 15,000 is underway.

Nasdaq daily chart

• _{Source: TradingView. The figures stated are as of 15 January 2023. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation.}