Wall Street: S&P 500 and Nasdaq hit record highs amid tech surge, eyes on key economic reports

On Friday night, the S&P 500 and the Nasdaq hit new record highs, buoyed by mega-tech companies including Nvidia, Amazon, and Alphabet. The Nasdaq increased by 1.81% for the week and is up 6.75% CYTD (Calendar Year To Date). The S&P 500 closed 1.37% higher for the week, at a 5.38% increase CYTD, while the Dow Jones finished the week flat, up 2.61% CYTD.

Following a series of stronger-than-expected data this year, the Atlanta Fed's GDPNow forecast for Q1 predicts growth at 3.4%, prompting discussions on whether the US economy is slowing down or reaccelerating. Further insights will be provided by this week's key macroeconomic events, including inflation and retail sales reports for January and the Michigan Consumer Sentiment Index for February.

The economic calendar also includes eight Federal Reserve speaker events, and the Q4 earnings season continues with reports from companies such as Coca-Cola, Airbnb, Lyft, Cisco, Robinhood, AMD, Dropbox, and Coinbase.

What is expected from January’s inflation report

Date: Wednesday, 14 February at 12.30am AEDT

With stronger-than-expected data and less dovish Federal Reserve commentary, the market has almost completely discounted the possibility of a Fed rate cut in March. However, around five rate cuts are still priced in for 2024 compared to the three cuts suggested by the Fed, largely based on the ongoing disinflationary trend.

The headline Consumer Price Index (CPI) is expected to rise by 0.2% in January, bringing the annual rate down to 2.9% YoY (Year on Year) from 3.4% previously. Core inflation is anticipated to increase by 0.3% MoM (Month on Month), which would see the annual core inflation rate ease to 3.7% from 3.9% YoY. The risk lies in potentially firmer-than-expected numbers.

US headline CPI chart

S&P 500 technical analysis

After capitalising on the strong rally in the S&P 500 at the end of 2023, we entered the New Year with a more cautious and neutral mindset—a stance that has not been rewarding as the mega-tech frenzy pushed the market higher.

Nonetheless, our assessment is that the S&P 500 is in the final stages (Wave V) of its rally from the low in October 2023, with continued evidence of bearish Relative Strength Index (RSI) divergence on the daily chart. Bearish RSI divergence occurs when prices hit new highs, but the RSI does not.

Moreover, the S&P 500 cash level has now encountered trendline resistance at 5030, drawn from the December 1st high of 4100, as shown in the chart below. Therefore, we are not inclined to pursue the market at these levels and maintain the perspective that a pullback is imminent.

S&P 500 daily chart

Nasdaq technical analysis

After witnessing the remarkable rally in US equity markets in the final months of 2023, we approached the new year with increased caution—a strategy that has not yielded expected returns as the Mega Tech frenzy propelled the market upwards.

Despite this, we maintain the perspective that the Nasdaq is approaching the final stages (Wave V) of its ascent from the low in October 2023. A decisive break or daily closure below the uptrend support at 17,300, originating from the October lows, would indicate that the Nasdaq has reached its peak and a more substantial retracement towards support levels at 16,200/16,000 could be imminent. Until such a break occurs, the Nasdaq's rally is likely to persist.

Nasdaq daily chart

• ^{Source:TradingView. The figures stated are as of 12 February 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.}