Wall Street: US markets surge with fourth consecutive weekly gains and inflation focus

In a holiday-shortened week, US equity markets locked in a fourth week of gains. The Dow Jones added 442 points (+1.27%), the S&P 500 gained 1%, and the Nasdaq gained 0.91% for the week. Wall Street’s measure of fear, the VIX, closed at 12.45%, its lowest close since January 2020.

In economic news, the not-too-hot, not-too-cold run of data continued Friday night as the US Composite Flash PMI for November printed unchanged at 50.7. Within the details, the Manufacturing PMI surprised to the downside at 49.4 vs 49.8 that was expected, while the Services PMI at 50.8 was stronger than the 50.4 expected.

In light of recent rapid market activity, a slight pullback in US equity indices would not be unexpected. Timing-wise, the end of this month, into early December, looks to be a possible window for a pullback to rebuild energy and to set up for the end-of-year finale.

This week's key economic data

This week, a pivotal economic event in the US is the unveiling of the Fed's favoured inflation metric, Core PCE, scheduled for Friday morning, which may influence the expected timing of the Fed's first “adjustment” cut.

What is expected from Friday's Core PCE inflation data?

The consensus expectation is for Core PCE to increase by 0.2% in October, which would see the annual rate ease to 3.5% from 3.7%, the lowest rate since April 2021.

Headline PCE is expected to rise by 0.1% in October, allowing the annual rate to moderate to 3.1% from 3.4%, on track to fall to 2.5% in the months ahead.

S&P 500 technical analysis

Last week, the rally from the October 4122 low, traded to a high of 4580.50, a gain of over 11% in just 18 trading sessions. Although we remain bullish into year end, we would not contemplate opening fresh longs at these elevated levels.

Instead, we would prefer to use dips back towards support at 4450/30 in anticipation of a retest and break of the July 4634.50 high. Above here is blue sky towards the November 2021, 4740.50 high, followed by the January 2022, 4808 high.

Aware that a sustained break below the support of the 200-day moving average at 4300 would warn that the rally has run its course and that a deeper pullback is underway.

S&P 500 daily chart

Nasdaq technical analysis

Last week, the rally from the October 14,140 low traded to a fresh cycle high of 16,173, a gain of over 14% in just 19 trading sessions. A move in line with our expectations - however, the “easy money” in the Nasdaq has now been taken off the table.

Although we remain bullish into year end, we would not contemplate opening fresh longs at these elevated levels. Instead, we would prefer to use dips back towards support at 15,700/450 in anticipation of a push towards 16,400/500 in the weeks ahead.

Aware that should the Nasdaq see a sustained break of support at 15,450, it would warn that the rally has run its course and that a deeper pullback is underway towards the 200-day moving average at 14,400.

Nasdaq daily chart

• _{Source Tradingview. The figures stated are as of 27 November 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.}