S&P 500 pare losses into the new week following first weekly decline since October 2023

The S&P 500 concluded the first week of January with its first weekly decline since October 2023, but were quick to pare the losses into the new week as inflows into big tech resume. There has not been much on the economic data front to start the week, apart from a broad-based fall in consumer inflation expectations from the New York Federal Reserve (Fed) survey driving the disinflation narrative. But given the outsized positive reaction in risk sentiments, it suggests that market participants are eager to take advantage of any near-term retracement to jump back into the markets.

Focus shifts to US inflation data

Ahead, attention will turn to the US consumer price index (CPI) this week to determine if the rally can have more legs to run. Thus far, markets continue to race ahead of the Fed in pricing for six rate cuts through 2024, with the first cut priced to be as early as March 2024, and significant disinflation progress is needed to justify such views.

Current expectations are for an uptick in US December headline inflation to 3.3% from previous 3.1%, but the core aspect will likely carry more weight in swaying Fed officials’ views. Current consensus is for further easing in core pricing pressures to 3.8% year-on-year from previous 4.0%, where a match or below-consensus read may help to keep the market confidence going.

Nasdaq technical analysis: Attempting to regain composure following recent retracement

Following the retracement since end-December last year, the Nasdaq 100 index is attempting to find some support off the 16,300 level, where a 23.6% Fibonacci retracement stands from its October low to December 2023 peak. This comes as its relative strength index (RSI) on the daily chart heads back towards the key 50 level, which calls for some defending from the bulls to keep the near-term upward bias intact. Ahead, the 16,300 level will remain as a key support to hold, while the bulls may set their eyes on the key 17,000 level for a retest.

Source: IG charts

S&P 500 technical analysis: Buyers eager to take any retracement as dip-buying opportunity

Following a brief dip below the 4,700 level for the S&P 500, buyers showed that they are not ready to cave in just yet as its daily RSI found some defending at the key 50 level. The formation of a bullish pin bar candle last Friday points to some dip-buying at the 4,670 level, while the index attempts to head back to retest its 2023 high at the 4,800 level. Any successful move above the 4,800 level may potentially leave the psychological 5,000 level on watch next, while on the downside, support confluence may be found at the 4,600-4,640 level.

Source: IG charts

Sector performance

The first week of 2024 brought a defensive shift in the markets, as sector performance revealed a pull-ahead in healthcare (+2.9%) and utilities (+2.6%), compared to mixed performance in economically-sensitive sectors. The S&P 500 was lower by 1.5% for the week, with some unwinding in the heavyweight big tech following its recent rally. Notably, Tesla was down 3.2%, while Amazon was lower by 1.9%, leading to the consumer discretionary sector (-1.7%) being the underperformer. Apple was dragged 3.6% in the red as well, but losses in the technology sector (-1.4%) were mitigated by a 5.5% jump in Nvidia. As we look towards the major US banks’ earnings this week, the financial sector will be cast into the limelight. Thus far, the Financial Select Sector SPDR Fund has gained for the fourth straight week to register its highest level since March 2022, with all eyes set on its all-time high in January 2022 next.

Source: Refinitiv

Source: Refinitiv

Source: Refinitiv
*Note: The data is from 2nd – 8th January 2024.

Source: Refinitiv
*Note: The data is from 2nd – 8th January 2024.

Source: Refinitiv
*Note: The data is from 2nd – 8th January 2024.