Wall Street: 2023 recap - surges, risks and inflation insights

With just two weeks left before year-end, let's take a moment to look at how things stand on Wall Street for 2023.

• The tech-heavy Nasdaq is up 52% CYTD
• The S&P500 is up 22.9% CYTD, not quite back at the level it ended 2021
• The Dow Jones has gained 12.5% CYTD and is trading at record highs.

These numbers would have been unimaginable just seven weeks ago. But that’s precisely where things stand — courtesy of the Fed's dovish pivot. The numbers also likely help to explain why New York Fed’s president John Williams said on Friday that the FOMC isn’t “really talking about rate cuts” right now.

Williams's comments appear to be an attempt to tame the animal spirits that have been unshackled in recent weeks and push back against the market's pricing of 150bp of rate cuts next year, ahead of Friday night's core PCE index.

What is expected from the Core PCE price index?

The Feds' preferred measure of inflation, the Core PCE price index, is scheduled for release on December 23rd at 12.30 am AEDT. The consensus expectation is for Core PCE to increase by 0.2% in November, which would see the annual rate ease to 3.3% from 3.5%, on track to return to 2.5% next year. Headline PCE is expected to rise by 0% in November, with the annual rate moderating to 2.8% from 3.0%.

S&P 500 technical analysis

On Friday night, the rally from the October low saw the S&P 500 cash make a fresh cycle high at 4739. Although we remain bullish, we would not contemplate opening fresh longs at these elevated levels.

Instead, we would prefer to wait for a corrective pullback and signs of basing as an opportunity to reset longs looking for a test and break of the January 2022, 4818 high. Aware that a sustained break below the support of the 200-day moving average at 4317 would warn that the rally has run its course and that a deeper pullback is underway.

S&P 500 daily chart

Nasdaq technical analysis

The Nasdaq has followed the road map to perfection in recent months, bottoming as expected in the 14,200/14,000 support zone before a rebound to new highs.

While caution is warranted due to the appearance of a five-wave rally (Elliott Wave) from the October 10,440 low, we find it hard to imagine that the Nasdaq would come all this way and not break above the November 2021 bull market high of 16,764 before a push above 17,000.

However, should the Nasdaq see a sustained break of support at 15,600ish, it would warn that the rally has run its course and that a deeper pullback is underway towards the 200-day moving average at 14,550.

Nasdaq daily chart

• _{Source TradingView. The figures stated are as of 18 December 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.}