Wall Street: what comes next for US equity markets perched at record highs?

Last week, the tech-heavy Nasdaq and the S&P 500 extended their winning streaks, marking a fifth straight week of gains. This was largely driven by NVIDIA's impressive earnings report, which saw its share price surge by 15%.

As we enter the last week of May, the Nasdaq is up a phenomenal 7.84% MTD, on track for its sixth month of gains from seven from its October low. The S&P 500 cash is up 5.34%, and the Dow Jones has gained 1253 points or 3.32%. As a side note, the tech sector's outperformance may result in some rebalancing month-end flows later this week from real money accounts.

The gains for benchmark indices this month have come despite hawkish Fed Speak and resilient data, which has seen the rates market scale continue to scale back expectations of Fed rate cuts. After pricing in ~170 bp of Fed rate cuts as of mid-January, there are now just 33 bp of rate cuts currently priced for 2024.

However, with earnings season winding up, macro data will likely retake the spotlight. This week's key macro events will include speeches by several Fed officials, CB Consumer Confidence, personal income and spending data, and the Fed's preferred measure of inflation, the Core PCE Price Index.

What is expected from Core PCE inflation

Date: Thursday, 31 May at 10.30pm AEST

Until recently, headline and core PCE price inflation trended lower from its September 2022 highs. However, in March, headline PCE inflation increased to 2.7% year-on-year (YoY) from 2.5% prior, above the 2.6% expected. Core PCE inflation remained stable in March at 2.8% YoY, compared with market expectations for a fall to 2.7%.

Comforted by the release of cooler CPI and PPI data earlier this month, which contain components that feed through into PCE inflation, headline PCE inflation is expected to remain stable at 2.7%. The Fed's preferred measure of inflation, the Core PCE, is also expected to remain stable at 2.8%.

While the bar to rate hikes remains high, the Fed has communicated it wants to see inflation make further progress towards its inflation target before it feels comfortable cutting rates.

PCE price index MoM chart

S&P 500 technical analysis

While the S&P 500 was able to make a new high last week, it left a loss of momentum weekly candle in place, which reflects some indecision. Additionally, the weekly close was below the weekly trendline resistance at 5310ish, drawn from the January 2022 high of 4818, which picks up the March 5264 high.

As such, we remain neutral on the S&P 500, needing a weekly close above the weekly trendline resistance at 5310/25 to move to a more positive bias. On the downside, a sustained break below 52100/5180ish would indicate that the S&P 500 has topped and that a deeper decline is underway.

S&P 500 weekly chart

Nasdaq technical analysis

Last week's surge in the Nasdaq cash above the weekly trendline resistance at 18,650/70ish, coming from the 16,764 high of November 2021 and which picks up the March 18,464 high, opens the way for the Nasdaq to extend its gains towards 19,200/300.

On the downside, a weekly close below the March 18,464 high and then below 18,000 would indicate that the rally has run its course.

Nasdaq weekly chart

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