S&P 500 Momentum Report

Calm before the storm, as markets gear up for a series of economic releases ahead

The S&P 500 ended 2023 on a high note, up close to 25% for the year while delivering a nine-week winning streak as a year-end finale – its best run since 2004. As trading volume gradually returns from the holiday break, the start of the new year may present some calm before the storm, as we look ahead to a series of key economic releases over the coming days.

With dovish Federal Reserve (Fed) rate expectations being a major catalyst driving the risk rally over the past months, eyes will be on the Fed minutes this week to clarify if market rate expectations have gotten ahead of themselves. Six rate cuts for 2024 are the current consensus, with the first cut priced to be as early as March 2024 and some validation for such aggressive pricing from policymakers seems much needed. The week will also round up with the US December job report, where further softening in US labour conditions will be on watch to be in line with what the Fed hopes to see.

Seasonality points to potential volatility mid-month

As we head into January of the new year, chatters may surround the ‘January barometer’ – a belief that the S&P 500's performance in January may set the stage for the S&P 500’s performance for the rest of the year. Seasonality for the S&P 500 over the past 20 years suggest that while the start of January may generally hold up well, we may expect some volatility into the second half of the month. This is compounded by the fact that current technical conditions are trading in extreme overbought territory, which may raise the odds for some near-term unwinding.

Technical analysis: S&P 500 continues to hang below its all-time high

The S&P 500 continues to hang just below its all-time high at the 4,800 level, where one may continue to argue that extreme overbought technical conditions and extended market breadth do not offer an ideal risk-reward ratio at current levels. In the event of any retracement, immediate support to watch may be at the 4,690 level, where a one-day blip in the rally back on 21 December 2023 was met with some dip-buying. On the other hand, any successful push to a new all-time high for the S&P 500 could leave the 4,913 level in sight, where the upper trendline resistance of a broad ascending channel stands.

Source: IG charts

Sector performance

The last week of 2023 saw market participants taking on a more cautious stance, as sector positioning leaned towards the defensive sectors in the likes of utilities, consumer staples and healthcare. Nevertheless, the S&P 500 managed to eke out a 0.3% gain, delivering a nine-week winning streak – its longest stretch since 2004. The performance of the ‘Magnificent Seven’ stocks were mixed however, with Tesla down 2.4%, Amazon down 1.2% and Apple down 1.1%. That translated to the underperformance in growth sectors for the week, although it may just be attributed to routine profit-taking in place, given the strong outperformance in the growth sectors through 2023. The energy sector continued to lag with a 1.4% loss for the week, as oil prices struggled to retain initial gains, given the on-and-off tensions in the Red Sea.

Source: Refinitiv

Source: Refinitiv

Source: Refinitiv
*Note: The data is from 22nd – 29nd December 2023.

Source: Refinitiv
*Note: The data is from 22nd – 29nd December 2023.

Source: Refinitiv
*Note: The data is from 22nd – 29nd December 2023.