S&P 500 Momentum Report

Market expectations held firm for March rate cut, with US earnings to take the limelight ahead

With the release of December US inflation data last week, markets remain adamant for a 25 basis point (bp) rate cut from the Federal Reserve (Fed) as early as March this year, with interest rate futures currently pricing for seven rate cuts through 2024. While such extreme dovish pricing reflects market confidence that the Fed will be able to keep inflation under control, it also points towards the mounting economic risks that comes with the high-rates environment, which call for a quicker unwinding in restrictive policies. A look at the US economic surprise index revealed that economic conditions have been outperforming by a far lesser margin compared to expectations over the past months.

Source: Refinitiv

Ahead, the US earnings season will take the limelight, with a series of major US banks’ earnings last week offering a glimpse of the US economy – resilient but still some caution on outlook. Earnings releases may be light this week, before the busy schedule for big tech comes up in the week of 22 January (Microsoft, Netflix, Tesla). With views of a soft landing fuelling the risk rally in 4Q last year, the earnings season will be on watch to provide validation that corporate earnings have indeed bottomed out and are set on a continued recovery path.

Near-term market breadth for S&P 500 eased slightly, but remains near extreme levels

In terms of market breadth, the percentage of S&P 500 stocks above their 50-day and 100-day moving averages (MA) have tapered off slightly since the start of the year, but remains near extreme levels. Broader risk sentiments are also leaning on the extreme bullish side, with the AAII bull-bear spread showing that bullish votes outpaced bearish bets by nearly 2:1.

In terms of seasonality for the month of January, average performance over the past 30 years suggests that the second half of the month may remain choppy, before performance picks up in early-February.

Source: TradingView

S&P 500 technical analysis: Back to retest December 2023 high

Following a brief dip below the 4,700 level to start the year, the S&P 500 managed to regain its footing, with the index headed back to retest its December 2023 high at the 4,800 level last week. Any break above the 4,800 level of resistance may be on watch to provide greater conviction for buyers still in control. Otherwise, the formation of near-term lower highs for its relative strength index (RSI) on the daily chart does point towards abating upward momentum for now, with any retracement potentially leaving the 4,600-4,640 range as a key support confluence on watch. On the broader scale, the upward trend remains intact, with the index trading above its various MA, alongside its Ichimoku cloud.

Source: IG charts

Sector performance

After major US indices kickstarted 2024 on the backfoot, last week marked a week of slight recovery for Wall Street, as big tech stocks saw renewed traction and drove growth sectors’ outperformance. Notably, Nvidia headed for a new record high with a 11.4% gain for the week, while Amazon and Meta Platforms are up 6.4%, along with Microsoft (+5.6%) and Alphabet (+5.0%). The outlier among the “Magnificent Seven” stocks is Tesla (-11.9% year-to-date), with its share price dragged down by a barrage of negative headlines which gave rise to concerns around slowing demand and lower margins. Tesla is down 7.8% last week, singlehandedly keeping the consumer discretionary sector (-0.2%) in the red. Given the mixed earnings from major US banks thus far, the financial sector ended the week lower by 1.1%, with all eyes on upcoming results from Morgan Stanley and Goldman Sachs next.

Source: Refinitiv

Source: Refinitiv

Source: Refinitiv
*Note: The data is from 8th – 12th January 2024.

Source: Refinitiv
*Note: The data is from 8th – 12th January 2024.

Source: Refinitiv
*Note: The data is from 8th – 12th January 2024.