Wall Street: S&P 500, Nasdaq end winning streak amid key economic data and earnings report
Closing January with style, Wall Street sees the S&P 500 and Nasdaq breaking winning streaks as investors eye the Core PCE data drop and await the critical FOMC interest rate decision.
The S&P 500 and the Nasdaq snapped six-session winning streaks on Friday, with traders booking profits and moving to the sidelines ahead of a busy week of corporate earnings and economic data. With three trading sessions left in January, the tech-heavy Nasdaq has added 3.54% MTD, the S&P 500 has added 2.54%, and the Dow Jones is 1.11% higher.
The much-anticipated December Core Personal Consumption Expenditures (PCE) fell to 2.9% versus 3% expected, the lowest rate since March 2021. Core PCE on a six-month annualised basis sits at 2%, and with the disinflation trend firmly in place, Federal Reserve rate cuts are coming. The only question is when.
This weekās key economic events, the January Federal Open Market Committee (FOMC) meeting and Non-Farm Payrolls, could see the rates market pull forward or push back a first Federal Reserve rate cut currently fully priced for May.
US Q4 earnings season continues this week with reports scheduled from companies including Pfizer, Alphabet, Starbucks, AMD, Microsoft Corp (previewed here), Mastercard, Boeing, Qualcomm, Meta, Apple (previewed here), Amazon, Exxon Mobil Corp, and Chevron Corp.
What is expected from the FOMC interest rate decision
Date: Thursday, February 1st at 6 am AEDT
At its last meeting in December, the FOMC kept the Federal Funds rate unchanged at 5.25%-5.50% for a third consecutive meeting. In the accompanying statement, the Fed noted that economic growth has slowed, job gains have moderated, and inflation has eased. The all-important Fedās ādot plotsā within the Summary of Economic Projections (SEP) indicated 75 basis points of rate cuts in 2024.
While the Fed will no doubt be pleased that the disinflation trend has continued against a backdrop of moderating growth, comments from Federal Reserve Board Governor Waller in mid-January indicate that the Fed is not yet ready to signal that rate cuts are imminent.
As such, the FOMC is expected to keep the Federal Funds rate unchanged at 5.25%-5.50%. It will likely open the door to future rate cuts via a change in its forward guidance. This can be done by removing its out-of-date tightening bias that says āthe extent of any additional policy firmingā with a neutral statement that indicates the Fed's rate-hiking cycle is over.
Fed fund rates
S&P 500 technical analysis
After a strong rally for the S&P 500 towards the end of 2023, we started the New Year with a more cautious and neutral mindset.
We maintain the view that the S&P 500 is in the final stages, or Wave V, of its rally from the October 2023 low. We again note the bearish Relative Strength Index (RSI) divergence on the daily chart. Bearish RSI divergence occurs when prices make new highs, but the RSI fails to reach new highs.
Consequently, we remain patient, awaiting the development of a pullback in the coming weeks in the order of 5-8% ā a pullback we are looking to buy.
S&P 500 daily chart
Nasdaq technical analysis
After a strong rally for the Nasdaq towards the end of 2023, we entered the new year with a more cautious and neutral mindset.
We continue to believe that the Nasdaq is in the final stages, or Wave V, of its rally from the low in October 2023. This perspective is bolstered by ongoing evidence of bearish Relative Strength Index (RSI) and a 'loss of momentum' type weekly candle.
In light of this, we remain patient, waiting for a pullback to develop in the coming weeks in the order of 5-10% ā a pullback we are preparing to buy.
Nasdaq daily chart
- Source: TradingView. The figures stated are as of 29 January 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.
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