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S&P 500 at new record highs as tech stocks extend gains
With the S&P 500 trading at a new all-time high of 5,149 reached on Monday, investor sentiment remains bullish. The U.S. benchmark index has extended gains further after U.S. inflation data released last week came in-line with estimates, cementing expectations of an interest rate cut in June – July.
Thanks to the tight labour market that kept wages elevated, which supported consumer spending, the economy has defied warnings of a recession after the Federal Reserve aggressive interest rates campaign to combat inflation.
The market has rallied strongly since its October 2022 low, propelled by euphoria around artificial intelligence chips demand. However, investors are now questioning how long the impressive pace of gains could last. While at this point there are no clear signs the rally is reversing, there are several red lights flushing on the charts.
First, the current price action has rebounded to its up trend channel line crossing at 5,130 where initial profits taking could arise. Second, a triple bearish divergence between the price and the Relative Strength Index indicator has formed, suggesting that internal momentum conditions are deteriorating, and the rally is vulnerable to a pull back in the short-term. Over the long-term, we continue to be positive and see levels to 5,400 – 5,450 as easily achievable.
Source: TradingView
Sticky inflation poses challenge for the U.S economy
Investors are concerned that inflation could remain elevated amid high government spending, strong consumer, and resilient labour market. Such situation may influence the Federal Reserve to keep interest rates elevated for a longer period of time.
Geo-political tensions which could escalate further are headwinds to global trade and could cause surges in inflation. Such potential risks do not seem to have influenced market bulls so far, which have been carried away with the artificial intelligence hype.
Apart from the robust labour market, strong government spending, geo-political and inflation risk, the market is facing global trade uncertainties associated with the U.S. presidential elections in November.
GDP growth remains strong
U.S. economic growth in the fourth quarter was lowered slightly, but its composition was much stronger than initially expected, which bodes well for the near-term outlook on the market.
According to the Bureau of Economic Analysis the second estimate of fourth-quarter GDP increased at a 3.2% annual rate, slightly revised down from the previously quarter 3.3% growth.
Consumer spending, which accounts for more than two-thirds of U.S. economic activity was stronger than initially thought, increased at a rate of 3.0% vs. 2.8% expected.
Inflation and Interest rates outlook
Investors remain concerned about the possibility that the Federal Reserve will keep interest rates at elevated levels for a prolonged period of time, and thus the focus has been on a string of key economic readings that could dictate Fed thinking going forward.
The latest Personal Consumption Expenditures (PCE) index came broadly in line with expectations, with the Core PCE for January arriving at 2.8% declining from 2.9% in December. This marks the 12 th consecutive decline in Core PCE and could be described as a consistent movement towards the Federal Reserve’s 2% inflation target.
The annual Consumer Price Index (CPI) came at a 3.1% in January 2024, while core CPI which excludes the volatile food and energy costs was 3.9% showing small disinflation over the past few months.
Several rate cuts are expected in 2024, and cooling inflation would be the most important signal to the Federal Reserve that the U.S. economy is ready for softer interest rates. Before its next meeting on the 20 th of March the Fed will examine the release of another CPI update, which is due on the 12 th of March.
Over the past two years the U.S. central bank has raised its policy rate by 525 basis points to the current range of 5.25%-5.50%. The pick-up in inflation at the beginning of the year, has pushed back rate-cut expectations from May to June.
Conclusion
Uncertainties regarding inflation, interest rate cuts, and geo-political risks are among the most prominent factors influencing the stock market currently. Despite all the challenges the market faces U.S. equities are trading at record highs. While a correction could unfold to unwind the overbought momentum conditions, we see further upside potential over the medium to long-term.
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Terms and Conditions
Notice
If you are not classified as an institutional investor, you will be categorised as a private/retail investor. At this time, we cannot send communications directly to private/retail investors. You are welcome to view the contents of this website.
If you are an ‘Institutional investor’, you affirm either that you are a Per Se Professional Client, or that you wish to be treated as an Eligible Counterparty Client, both as defined under the Markets in Financial Instruments Directive, or an equivalent in a jurisdiction outside the European Economic Area.
Risk Warnings
The value of an investment in ETPs may go down as well as up and past performance is not a reliable indicator of future performance. Trading in ETPs may not be suitable for all types of investor as they carry a high degree of risk. You may lose all of your initial investment. Only speculate with money you can afford to lose. Changes in exchange rates may also cause your investment to go up or down in value. Tax laws may be subject to change. Please ensure that you fully understand the risks involved. If in any doubt, please seek independent financial advice. Investors should refer to the section entitled “Risk Factors” in the relevant prospectus for further details of these and other risks associated with an investment in the securities offered by the Issuer.
This website is provided for your general information only and does not constitute investment advice or an offer to sell or the solicitation of an offer to buy any investment.
Nothing on this website is advice on the merits of any product or investment, nothing constitutes investment, legal, tax or any other advice nor is it to be relied on in making an investment decision. Prospective investors should obtain independent investment advice and inform themselves as to applicable legal requirements, exchange control regulations and taxes in their jurisdiction.
This website complies with the regulatory requirements of the United Kingdom. There may be laws in your country of nationality or residence or in the country from which you access this website which restrict the extent to which the website may be made available to you.
United States Visitors
The information provided on this site is not directed to any United States person or any person in the United States, any state thereof, or any of its territories or possessions.
Persons accessing this website in the European Economic Area
Access to this site is restricted to Non-U.S. Persons outside the United States within the meaning of Regulation S under the U.S. Securities Act of 1933, as amended (the “Securities Act”). Each person accessing this site, by so doing, acknowledges that: (1) it is not a U.S. person (within the meaning of Regulation S under the Securities Act) and is located outside the U.S. (within the meaning of Regulation S under the Securities Act); and (2) any securities described herein (A) have not been and will not be registered under the Securities Act or with any securities regulatory authority of any state or other jurisdiction and (B) may not be offered, sold, pledged or otherwise transferred except to persons outside the U.S. in accordance with Regulation S under the Securities Act pursuant to the terms of such securities. None of the funds on this website are registered under the United States Investment Advisers Act of 1940, as amended (the “Advisers Act”).
Exclusion of Liability
Certain documents made available on the website have been prepared and issued by persons other than Leverage Shares Management Company. This includes any Prospectus document. Leverage Shares Management Company is not responsible in any way for the content of any such document. Except in those cases, the information on the website has been given in good faith and every effort has been made to ensure its accuracy. Nevertheless, Leverage Shares Management Company shall not be responsible for loss occasioned as a result of reliance placed on any part of the website and it makes no guarantee as to the accuracy of any information or content on the website. The description of any ETP Security referred to in this website is a general one. The terms and conditions applicable to investors will be set out in the Prospectus, available on the website and should be read prior to making any investment.
Leverage Investment
Leverage Shares exchange-traded products (ETPs) provide leveraged exposure and are only suitable for experienced investors with knowledge of the risks and potential benefits of leveraged investment strategies.
Cookies
Leverage Shares Management Company may collect data about your computer, including, where available, your IP address, operating system and browser type, for system administration and other similar purposes (click here for more information). These are statistical data about users’ browsing actions and patterns, and they do not identify any individual user of the website. This is achieved by the use of cookies. A cookie is a small file of letters and numbers that is put on your computer if you agree to accept it. By clicking ‘I agree’ below, you are consenting to the use of cookies as described here. These cookies allow you to be distinguished from other users of the website, which helps Leverage Shares Company provide you with a better experience when you browse the website and also allows the website to be improved from time to time. Please note that you can adjust your browser settings to delete or block cookies, but you may not be able to access parts of our website without them.
This website is maintained by Leverage Shares Management Company, which is a limited liability company and is incorporated in Ireland with registered offices at 2 Grand Canal Square, Grand Canal Harbour, Dublin 2.
By clicking you agree to the Terms and Conditions displayed.
