S&P 500 Momentum Report

Holiday-shortened week in the US saw some caution creeping in

Higher US Treasury yields on the back of hotter-than-expected US inflation failed to erode the optimism in Wall Street last week, as the S&P 500 reversed initial post-consumer price index (CPI) losses to hang around its recent record high. But as we tread in the seasonally weaker period of the year, with Nvidia’s earnings providing the last for megacap tech results this week, markets may be faced with the challenge of having to seek out fresh catalysts to continue with its risk rally ahead.

What to watch: US FOMC minutes, Nvidia’s earnings

The week ahead will leave the US Federal Open Market Committee (FOMC) minutes on watch. Amid the recent US inflation scare, market participants have pared their rate cut expectations to price for four 25 basis point (bp) reduction by the end of 2024, versus the initial six cuts at the start of the year. The minutes may be slightly outdated, given that the recent inflation data is released after the previous FOMC meeting. But nevertheless, eyes will be on any clues from policymakers surrounding rate outlook and economic risks ahead.

The key market risk event this week may be Nvidia’s earnings. Being the poster child for the artificial intelligence (AI) boom, its share price is up another 50% year-to-date, with expectations seemingly priced for perfection and leaving little room for error with its upcoming results. Refinitiv estimates are looking for 4Q revenue to jump 241% from a year ago to US$20.6 billion, while earnings per share may jump 427% year-on-year to US$4.64.

S&P 500 technical analysis: Indecision kicks in around key psychological 5,000 level

The S&P 500 continues to flirt with its key psychological 5,000 level into the holiday-shortened week, with its recent ranging moves pointing to some near-term indecision for now. A minor ascending channel pattern has been in place since the start of the year, with one to watch for any break below the lower trendline support, along with its post-CPI low on 14 February, to signal sellers taking greater control. That may then potentially pave the way for a wider retracement in the index towards the 4,800 level next. On the broader scale however, the trend remains upward bias, with its daily relative strength index (RSI) trading above the key 50 level since November 2023.

Source: IG charts

Sector performance

Market participants found some unease from hotter-than-expected US January inflation, which led to profit-taking activities in rate-sensitive growth sectors last week. The consumer discretionary, communication services and technology sectors registered losses, dragged lower by mixed performance among the “Magnificent Seven” stocks. Notably, Alphabet was down 5.6% for the week, Apple and Microsoft were down more than 3%, while Amazon was 2.8% lower. Nvidia managed to eke out a slight gain of 0.7% last week as a show of resilience, but its upcoming earnings releases will determine if its 51% return year-to-date is overly priced for perfection. The materials sector (+2.4%) outperformed for the second straight week, followed by the energy sector (+2.2%) which found support from a three-week high in oil prices. Financials gained 1.4% as well, overall reflecting some catch-up in place among laggard sectors.

Source: Refinitiv

Source: Refinitiv

Source: Refinitiv
*Note: The data is from 12th – 16th February 2024.

Source: Refinitiv
*Note: The data is from 12th – 16th February 2024.

Source: Refinitiv
*Note: The data is from 12th – 16th February 2024.