The S&P 500 (SPX) closed 2.5% higher last week, which marked the 7th straight week of gains. The index is now very close to posting fresh record highs as it returns to trade above 4700 for the first time since January 2022. Overall, the S&P 500 is up about 15% from the October lows.
Tech-heavy Nasdaq Composite Index (IXIC) was up 2.9% as the bulls eye 15,000 after nearly two years. On the other hand, the Dow Jones Industrial Average (DJI) was also up 2.9%, which was enough for the new record high.
Markets are still digesting the Fed’s dovish pivot and continued stock and bond rally. The rally in risk assets was a result of a massive jump in demand for bonds, which sent yields sharply lower.
“Markets have aggressively priced in no recession or slowdown, but that’s premature. The economy could easily slow and there are some signals slowing growth is happening,” analysts said.
For this week, the Core PCE Price Index, due on Friday, holds particular significance as a gauge for inflation, a crucial factor in the Federal Reserve’s recent dovish pivot. A larger-than-expected decline in inflation could reinforce expectations of rate cuts, potentially benefiting stocks.
Additional noteworthy data includes updates on Philly Fed and Durable Goods as solid readings could support the narrative of a soft landing and maintain current valuations. Weekly jobless claims on Thursday and Continuing Claims will also be closely monitored for insights into the labor market.
On the earnings front, FedEx (NYSE:FDX) reports on Tuesday after market close, followed by Micron (NASDAQ:MU) on Wednesday. A day later, Nike (NYSE:NKE) is the most notable reporter.
What analysts are saying?
Analysts: “For this rally to continue, we can’t have economic data suddenly start to miss expectations, because now that the Fed has made its dovish pivot, it can’t help markets if worries about an economic slowdown rise. That’s why we’re watching economic data closely at the start of the year.”
Oppenheimer’s analysts: “We remain positive on equities on expectations that fundamentals in the broad economic and corporate and consumer realm are likely to persist improving if not without challenges along the way.”
BTIG’s analysts: “Internal breadth reached an extreme with the highest amount of SPX components having an RSI above 70 since 1991. To be clear, overbought often doesn’t always mean over, as a ‘good overbought’ reading often leads to near-term consolidation followed by medium-term strength. This typically occurs after a breakout from a long consolidation.”
ROTH KMK’s analysts: “It is our thinking the market was a little offside into Jerome Powell’s comments regarding rate cuts. 2024 will continue to offer plenty of challenges to equity investors. We recommend having an outsized equity position within Quality Companies with strong charts.”
Morgan Stanley’s analysts: “Chair Powell’s tone about the direction of policy going forward came as a surprise to markets as evidenced by the additional cuts that were immediately priced into the forward curve and the impact on stock prices, especially lower quality ones. A key question now is will market leadership rotate toward lower quality/small caps in a more sustainable manner?”
Goldman Sachs’ analysts: “We raise our year-end 2024 S&P 500 index target to 5100 representing 8% upside from the current level. Decelerating inflation and Fed easing will keep real yields low and support a P/E multiple greater than 19x.”
