Wall Street: S&P 500, Nasdaq end winning streak amid key economic data and earnings report

[MongiIG]

Closing January with style, Wall Street sees the S&P 500 and Nasdaq breaking winning streaks as investors eye the Core PCE data drop and await the critical FOMC interest rate decision.

 

 Written by: Tony Sycamore | Market Analyst, Australia | Publication date: Monday 29 January 2024 08:03

The S&P 500 and the Nasdaq snapped six-session winning streaks on Friday, with traders booking profits and moving to the sidelines ahead of a busy week of corporate earnings and economic data. With three trading sessions left in January, the tech-heavy Nasdaq has added 3.54% MTD, the S&P 500 has added 2.54%, and the Dow Jones is 1.11% higher.

The much-anticipated December Core Personal Consumption Expenditures (PCE) fell to 2.9% versus 3% expected, the lowest rate since March 2021. Core PCE on a six-month annualised basis sits at 2%, and with the disinflation trend firmly in place, Federal Reserve rate cuts are coming. The only question is when.

This week’s key economic events, the January Federal Open Market Committee (FOMC) meeting and Non-Farm Payrolls, could see the rates market pull forward or push back a first Federal Reserve rate cut currently fully priced for May.

US Q4 earnings season continues this week with reports scheduled from companies including Pfizer, Alphabet, Starbucks, AMD, Microsoft Corp (previewed here), Mastercard, Boeing, Qualcomm, Meta, Apple (previewed here), Amazon, Exxon Mobil Corp, and Chevron Corp.

What is expected from the FOMC interest rate decision

Date: Thursday, February 1st at 6 am AEDT

At its last meeting in December, the FOMC kept the Federal Funds rate unchanged at 5.25%-5.50% for a third consecutive meeting. In the accompanying statement, the Fed noted that economic growth has slowed, job gains have moderated, and inflation has eased. The all-important Fed’s “dot plots” within the Summary of Economic Projections (SEP) indicated 75 basis points of rate cuts in 2024.

While the Fed will no doubt be pleased that the disinflation trend has continued against a backdrop of moderating growth, comments from Federal Reserve Board Governor Waller in mid-January indicate that the Fed is not yet ready to signal that rate cuts are imminent.

As such, the FOMC is expected to keep the Federal Funds rate unchanged at 5.25%-5.50%. It will likely open the door to future rate cuts via a change in its forward guidance. This can be done by removing its out-of-date tightening bias that says “the extent of any additional policy firming” with a neutral statement that indicates the Fed's rate-hiking cycle is over.

Fed fund rates

 

Source: Federal Reserve Economic Data

S&P 500 technical analysis

After a strong rally for the S&P 500 towards the end of 2023, we started the New Year with a more cautious and neutral mindset.

We maintain the view that the S&P 500 is in the final stages, or Wave V, of its rally from the October 2023 low. We again note the bearish Relative Strength Index (RSI) divergence on the daily chart. Bearish RSI divergence occurs when prices make new highs, but the RSI fails to reach new highs.

Consequently, we remain patient, awaiting the development of a pullback in the coming weeks in the order of 5-8% — a pullback we are looking to buy.

S&P 500 daily chart

 

Source: TradingView

Nasdaq technical analysis

After a strong rally for the Nasdaq towards the end of 2023, we entered the new year with a more cautious and neutral mindset.

We continue to believe that the Nasdaq is in the final stages, or Wave V, of its rally from the low in October 2023. This perspective is bolstered by ongoing evidence of bearish Relative Strength Index (RSI) and a 'loss of momentum' type weekly candle.

In light of this, we remain patient, waiting for a pullback to develop in the coming weeks in the order of 5-10% — a pullback we are preparing to buy.

Nasdaq daily chart

 

Source: TradingView

 

• _{Source: TradingView. The figures stated are as of 29 January 2023. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation.}

 

 

 

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