Navigating Through Choppy Waters
Last week's market showed a blend of volatility and resilience, marked by sideways trends and choppy movements. The dominant influence came from the 'magnificent 7' stocks, which significantly impacted key indexes. Despite the fluctuations, the S&P 500 (SPX) and Nasdaq (NDX) ended the week on a positive note. The SPX was up four days out of five, gaining 51 points, a modest increase compared to the previous weeks but still indicative of an upward trend. The NDX mirrored this pattern, finishing 144 points higher. January's overall performance for SPX saw a downturn initially, but it recovered in the subsequent weeks.
The Russell 2000 (RUT) showed a positive trend for the first time in January, gaining 33 points. This signals a potential shift in market sentiment towards broader bullish optimism. Technical analysis of the SPX and NDX indicates an upward trend, both in the 3-month daily and 10-day hourly charts. The RUT's daily chart also shows an upward trend, but its hourly chart suggests more sideways movement. The Volatility Index (VIX), remaining under 15, suggests a calm market environment, countering recent sell-offs with bullish buying.
Analyzing Market Breadth: A Balancing Act
The market's breadth presents an interesting mix of bullish sentiment and caution. The Fear and Greed Index, at 77, falls into 'Extreme Greed' territory, signaling strong market momentum but also the potential for overconfidence. The market momentum is high, indicating robust buying interest. However, recent sell-offs in high-profile stocks like Tesla have introduced some weakness in the stock price index.
The McCellan Volume Summation Index is slowing down, reflecting in the sideways movement of most index prices. The lowering Put/Call ratio suggests a resurgence in call buying, indicating bullish market sentiment. Interestingly, there's reduced activity in safe-haven assets, pointing to a stable and confident market. Overall, the breadth indicators are high but showing signs of cooling off, possibly leading to a gradual uptrend.
Sector Rotation: Financials Lead the S&P 500
The sector rotation within the S&P 500 last week showed varied performance across different sectors. The financials sector had a significant impact on the S&P 500's earnings, contributing to a below-average performance. About 69% of the companies reported actual EPS above estimates, but the aggregate earnings were 5.3% below estimates. The S&P 500 reported a blended revenue growth rate of 3.2%, marking the 13th consecutive quarter of revenue growth. Most sectors showed year-over-year growth in revenues, except for Energy and Materials. Analysts are expecting a return to earnings growth in the upcoming quarters.
Intermarket Correlation: Diverging Patterns Emerge
Intermarket correlations are showing interesting divergences. Major indices like the SPX, NDX, and RUT continue to be highly correlated. However, the VIX shows a 74% inverse correlation with the SPX. Bonds, gold, cryptocurrencies, and copper are positively correlated with the SPX, while oil and the USD show an inverse relationship. Bonds and equities are currently 84% correlated, diverging from the typical inverse relationship, suggesting a change in market dynamics.
Market Moving News Last Week: Key Developments
Various economic indicators and company-specific news shaped last week's market. Consumer spending increased, and American Express's Q4 results forecasted a 9-11% revenue growth for 2024. Stock performances varied, with notable movements in specific stocks. Global economic developments, such as China's decision to cut bank reserves, and regulatory news also influenced market sentiments.
Upcoming Week's Economic Events
The upcoming week is set to feature several key events that will offer deeper insights into the economic landscape. These include the release of the Treasury's quarterly financing estimates, which will shed light on the government's borrowing needs. Additionally, a variety of economic data will be published, including the Dallas Fed Manufacturing Survey and the Consumer Confidence Index, providing perspectives on manufacturing activity and consumer sentiment.
A focal point of the week will be the Federal Open Market Committee (FOMC) decision, which is closely watched for indications of future monetary policy. Furthermore, pivotal reports such as Nonfarm Payrolls and the Unemployment Rate will be released, offering crucial data on the labor market's health. These events, combined with various earnings reports, are expected to clarify the current economic situation and potential future trends.
Market Next Week (Market Makers Move)
| Symbol | SPX | NDX | RUT |
|---|---|---|---|
| High | 4950 | 17709 | 2017 |
| Low | 4827 | 17149 | 1939 |
Conclusion: A Mixture of Optimism and Caution
The market analysis reflects a combination of bullish optimism and a need for caution. The trends and indicators suggest a potential upward movement, but investors should remain vigilant, especially considering the sectoral shifts and intermarket divergences. The upcoming week's economic events will further shape market directions, requiring close monitoring for informed decision-making.