S&P makes moves at another record high, as key data eyed for next week

Stocks have been mixed at the end of the week, as the market recalibrates its expectations for interest rate cuts after push back from Fed and ECB members. The FTSE 100 is set to close the week down more than 2%, the Eurostoxx is currently down 0.8% for the week and the Dax is down by more than 1%. US indices are bucking this trend, the Nasdaq is up 1.68% so far this week, and the S&P 500 is higher by 0.84%. The tech sector and communication services are still driving the US market, and Europe is missing out because of its lack of tech exposure.

Interestingly tech is still rallying even though Treasury yields are moving higher, and the chances of a March Fed rate cut are slipping sharply. The 2-year yield touched 4.4% earlier on Friday, its highest level since mid-December. The market now sees an even chance of the Fed cutting rates in March, last week the market was pricing in a near 80% probability of a rate cut. Tech is continuing to benefit from the good news from Taiwan Semiconductors that has driven faith that the AI boom can continue. This is benefitting the tech firms that are leading the way for the AI tech boom. Nvidia is up by more than 5% so far this week, and continues to outperform in the broader market and tech space. This suggests that the AI theme has further to run, and we expect to continue to see outperformance for the major players in this space.

There was a strong pickup in consumer confidence in the US, the Uni of Michigan consumer sentiment survey was 78.8 in January, up from 69.7 in December. Inflation expectations also fell. Inflation expectations one year ahead fell to 2.9%, down from 3.1%, while longer-term inflation expectations also dipped to 2.8% from 2.9%, and were lower than expected. This is feeding the view that the US economy has started 2024 on a strong note, and that the disinflation trend is still intact even after the pick up in CPI for December.

Overall, market sentiment has been mixed this week, but US stocks are absorbing the push back in rate cut expectations well. Economic data has so far helped to boost sentiment and the S&P 500 is close to its all time high of 4,796 from January 2022. Next week is a busy one for earnings releases. Key releases to watch include Netflix, Johnson and Johnson, IBM, Microsoft, Tesla, Boeing, Intel, Visa, American Express and Chevron. We will also be watching for the preliminary PMI reports for January for Europe and the US, and anything that can push expectations for interest rate cuts further into the future.