S&P 500 weekly report: What to expect for US CPI

Market sentiment cools slightly following Trump-induced rally

The new week brought some slight consolidation in Wall Street following a Trump-induced surge, but there seems little in the way to stop the broader upward trend for now. US election uncertainties are clearing, the rising prospects of a ‘Red Wave’ may support easier deregulation passthrough and higher fiscal spending, the Federal Reserve (Fed) remains on its path for gradual rate cuts, while US economic conditions continue to surprise on the upside. The US economic surprise index is now at its highest level since April this year. Not to mention that year-end seasonality tends to be in favour of taking on risks.

What to expect for the upcoming US consumer price index (CPI) data?

This week will bring US CPI data in focus. Expectations are for US headline inflation to edge to 2.6%, up from the 2.4% prior. The core aspect is expected to remain unchanged at 3.3%. Month-on-month, headline and core CPI are expected to stay unchanged at 0.2% and 0.3% respectively.

Before the next Fed meeting on 18 December, policymakers will have November job report and two consumer inflation data to digest beforehand. With September core inflation ticking higher to 3.3% (its first uptick since April 2023), another month of uptick above the 3.4% level in the October’s read may likely question how much room the Fed truly have in terms of rate cuts.

Amid ongoing concerns around the inflationary effects that Trump’s policies may bring, any higher-than-expected read in the US CPI could call for some paring in dovish bets, which may offer further boost to the US dollar. Currently, markets are heavily leaning towards a 25 basis point (bp) cut in December with a 85% probability, in line with what policymakers have previously guided for, hence any signs of persistence in pricing pressures may likely call for some recalibration.

S&P 500: Clearing of US election risks triggers risk-on mood

The clearing of US election risks helped to fuel a risk-on mood in Wall Street, as market positioning rushes to mirror the Trump trade seen in 2016, which means being long on financials, technology, energy and particularly, small caps as the beneficiaries for Trump’s “made in America” agenda. The S&P 500 punched to a new record high, with a broad rising channel pattern in place.

Sentiment indicators do not seem to scream for overextended levels just yet, looking at the AAII bull-bear spread, NAAIM exposure index and CNN Fear & Greed index. Ahead, the 6,168 level may be on watch next, where the upper channel trendline resistance stands, while immediate support may be at the 5,873 level.

Levels:

R2: 6,168
R1: 6,000

S1: 5,873
S2: 5,674

Source: IG charts

Sector performance

A risk-on environment fuelled by Trump 2.0 prospects has seen broad-based gains across all S&P 500 sectors last week, with the broader index up 5.1%. The consumer discretionary sector (+12.1%) was the outperformer, with Tesla’s 44% weekly gain offering much of the boost, alongside Amazon’s 5.7%. Financials (+7.8%) registered strong outperformance as well, with a less dovish Fed’s rate outlook from Trump 2.0 directly supporting room for net interest margin expansion ahead. Trump’s focus on “Made in America” onshoring and likelihood of strong infrastructure spending with a potential ‘Red Wave’ has given industrials a strong boost too, with the sector gaining 6.9%. All Magnificent Seven stocks closed higher for the week. Apart from Tesla’s 44% surge, Nvidia was up 6.8% to touch a new record high, while Alphabet was up 6.6%.

Source: Refinitiv

Source: Refinitiv

Source: Refinitiv
*Note: The data is from 5th – 11th November 2024.

Source: Refinitiv
*Note: The data is from 5th – 11th November 2024.

Source: Refinitiv
*Note: The data is from 5th – 11th November 2024.