Can Wall Street build on its post-election euphoria?

US stocks hit record highs post-election

United States (US) stocks continued their impressive climb on Friday, reaching record highs following Donald Trump’s electoral victory and a subsequent interest rate cut from the Federal Reserve (Fed). For the week, the Nasdaq 100 rose by 5.41%, the S&P 500 climbed 4.66%, and the Dow Jones gained 1936 points (+4.61%).

Republican 'red sweep' holds potential for markets

With election results still being finalised, the market is awaiting official confirmation that the Republicans have won the House, achieving a 'red sweep' that could ease the implementation of Trump’s preferred trade and tax policies.

The market’s next move will hinge on whether Trump prioritises tax cuts or tariffs, each of which has a vastly different impact on stock markets. This decision may be weeks or even months away, following his inauguration on 20 January.

It’s worth remembering that in 2016, Trump’s first move was to cut taxes, which boosted stock markets. However, tariffs on China created headwinds in 2018 and 2019. Most analysts suspect tariffs might come first under Trump 2.0, with stimulus measures arriving later.

China’s economic pivot

Regarding China, the National People's Congress (NPC) announcement on Friday fell short of market expectations. The NPC approved a five-year Renminbi (RMB) 10 trillion local government debt swap program, but guidance suggested only modest stimulus for housing and consumption.

The measures confirm that Beijing is recalibrating its economic strategy to tackle deflation and maintain stability, aiming to counter the impact of tariffs under Trump 2.0. This shift has gained additional importance following the release of soft Chinese inflation data over the weekend.

Looking ahead

This week, the October consumer price index (CPI) report is the key US release. Additionally, producer price index (PPI) and retail sales data are due, along with a speech by Fed Chair Powell on Friday morning.

What is expected from this week’s US CPI release?

Date: Thursday, 14 November at 12.30am AEDT

In September, the annual headline inflation rate in the US slowed for the sixth consecutive month, reaching 2.4% year-on-year (YoY), down from 2.5% previously. This marked the lowest level since February 2021. Meanwhile, the annual rate of core inflation, which excludes the volatile food and energy sectors, edged up to 3.3% YoY in September, rising from a three-year low of 3.2%.

For October, the preliminary expectation is for annual headline inflation to rise to 2.6%, while core inflation is expected to remain stable at 3.3% YoY. The rates market begins the week pricing in an 80% probability of another 25 basis point (bp) Fed cut at the meeting on 18 December.

US core inflation rate chart

Nasdaq 100 technnical analysis

The cracks noted in the Nasdaq 100 leading up to last week’s US election have been thoroughly covered, as the index rocketed to fresh record highs last week.

As long as the Nasdaq remains above our key support now at 19,900 - 19,800 (raised from the 19,600 - 19,500 support area), we expect the rally to extend towards the next upside target at 21,500, with potential to reach trend channel resistance around 22,150.

If the Nasdaq 100 experiences a sustained break of support at 19,900 - 19,800, we would expect a test of the 200-day moving average at 18,915 before reaching trend channel support at 18,400.

Nasdaq 100 daily chart

S&P 500 technical analysis

Last week, the S&P 500 surged away from the medium-term band of horizontal support at 5670 - 5650 to finish the week above 6000.

Looking forward, we suspect the S&P 500 will continue higher towards the weekly trend channel resistance at 6250 - 6270, as shown in the chart below.

A sustained break below the band of horizontal support (at 5760 - 5750) would indicate that the S&P 500 has topped out and a deeper pullback is underway.

S&P 500 daily chart

• _{Source: TradingView. The figures stated are as of 11 November 2024. 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.}