S&P 500 Momentum Report

Final week of 2023 to leave much anticipation for Santa Claus rally

Last week, the S&P 500 pushed on with its eighth straight week of gains to register its longest winning streak since 2017, as incoming economic data continues to validate dovish market expectations priced for 2024. We have the last US inflation data for the year – the US core Personal Consumption Expenditures (PCE) price index on Friday, which saw another downside surprise for November (3.2% versus 3.3% forecast). The lower-than-expected read marked the seven straight month where inflation has either met or came in below market consensus, which has been in line with the Federal Reserve (Fed)’s aim of wanting to see further inflation progress for a policy pivot.

As we head into the final week for 2023, which is also the period for the renowned ‘Santa Claus rally’, attention will be on whether risk sentiments can overcome the mid-week volatility displayed last week. For the S&P 500, this will leave the 4,780 level of resistance on watch ahead. As both the Dow Jones Industrial Average (DJIA) and Nasdaq have touched their respective all-time highs this year, there has been much anticipation for the S&P 500 to deliver as well.

For now, extreme overbought technical conditions still do not offer an ideal risk-reward ratio at current levels, as the relative strength index (RSI) and moving average convergence/divergence (MACD) on the daily chart hovers at its extreme levels. Market bulls may make a final attempt to end off 2023 on a high note amid the holiday-shortened week, with any successful break above the 4,780 level ahead potentially leaving sight on its all-time high at the 4,812 level. But heading into 2024, it may call for some near-term cooling as dovish expectations seem priced for perfection. On the downside, the 4,700 level may be immediate support to hold, where recent dip-buying were sighted.

Source: IG charts

In terms of market breadth, the percentage of S&P 500 stocks above their respective 50-day and 100-day moving averages (MA) continue to hover at extreme overbought levels. The Fear & Greed Index also remains at ‘extreme greed’ levels, while other sentiment indicator such as the National Association of Active Investment Managers (NAAIM) Exposure Index is also near previous peaks.

Source: TradingView

Sector performance

Over the past week, sector performance has been more mixed, with an uneven showing in the performance for the ‘Magnificent Seven’ stocks. Notably, a 6.6% weekly gain in Alphabet and 5.5% gain in Meta Platforms did the heavy-lifting for the communication services sector to be the top performing sector. On the other hand, some weakness in Apple (-2.0%) and semiconductors (Nvidia -0.1%, Broadcom -0.7%) dragged the technology sector slightly into the red. The consumer discretionary sector was also weighed by a muted showing from Tesla (-0.4%) and a plunge in Nike’s share price (-11.1%), which far overrode the resilience from Amazon (+2.3%). Overall, the S&P 500 managed to eke out a 0.3% gain with seven out of 11 S&P 500 sectors in the green. Defensive sectors in the likes of consumer staples and utilities continue to underperform, which still revealed broad risk-on appetite in place. As we round up the year, year-to-date performance has shown a clear comeback in growth sectors, as the Fed’s peak hawkishness translated to renewed traction for the 2022 growth laggards. The energy sector has switched places as well, with its top outperformance in 2022 unwinding this year to join the ranks of the defensives in the red.

Source: Refinitiv

Source: Refinitiv

Source: Refinitiv
*Note: The data is from 18th – 22nd December 2023.

Source: Refinitiv
*Note: The data is from 18th – 22nd December 2023.

Source: Refinitiv
*Note: The data is from 18th – 22nd December 2023.