SPX Spotlight - Wednesday, Dec 11, 2024: Inflation data boosts sentiment
S&P 500 climbs as Tech rally pushes Nasdaq above 20,000 amid easing inflation concerns and rate cut hopes.
Introduction
The S&P 500 (SPX) surged to near-record levels on Wednesday, driven by a rally in big tech stocks and renewed optimism about potential interest rate cuts. The index closed just shy of its all-time high as investors digested the latest inflation data and its implications for Federal Reserve policy.
The SPX opened at 6,040.91, reached an intraday high of 6,089.54, and closed at 6,084.19, marking a robust gain of 0.8% for the session. Nasdaq composite soar 1.8% and breaking the 20,000 level for the first time in history. Meanwhile, the Dow Jones Industrial Average lagged, dipping 0.2% to 44,148.56
Market Drivers and Economic Reports
The Consumer Price Index (CPI) report released today played a pivotal role in driving market sentiment. The data showed that 12-month inflation rose to 2.7% in November, up slightly from 2.6% in October, matching economists' projections.
While this indicates persistent inflation, it aligned with forecasts and reinforced expectations of a potential interest rate cut by the Federal Reserve at its upcoming meeting next week.
The market's reaction to the CPI data was notably positive. Investors interpreted the report as a sign that the Fed might adopt a more dovish stance, with market participants now pricing in a 98% chance of a quarter-point rate cut next week, up from 86% before the inflation report's release. This shift in expectations contributed significantly to the day's market gains.
Technology stocks were the primary drivers of today's market rally:
Broadcom (AVGO) emerged as the top performer in the S&P 500, surging 6.6%. The semiconductor firm's shares soared following reports of a potential partnership with Apple on a new AI chip.
Big Tech stocks led the broader market gains, propelling the Nasdaq composite to break the 20,000 level for the first time in history.
Tesla (TSLA) continued its strong performance, with the stock up 43% year-to-date, benefiting from increased attention to CEO Elon Musk's advisory role to the current administration.
Google (GOOGL) exhibiting strong momentum following the announcement of its new quantum computing chip, Willow.
However, not all sectors saw gains:
Health care companies with pharmacy benefit management (PBM) operations faced pressure. CVS Health (CVS) fell 6.2%, while UnitedHealth (UNH) and Cigna (CI) also moved lower due to a proposed bipartisan bill affecting their pharmacy businesses.
Uber Technologies (UBER) slipped 5.8% following General Motors' announcement to step away from its Cruise self-driving taxi initiative.
Technical Analysis
Recap
We ripped right through our resistance and liquidity zones on Core CPI results. There was some weakness at close due to resistance from previous highs. Today’s gap up might already be pricing in the fed rate cuts.
Bull Case
On the hourly chart, SPX can play in the liquidity zone near pivot before testing previous highs. Since Nasdaq broke 20,000 - it could be a strong catalyst for SPX to make new highs as well. The only resistance we face at this point it previous high.
Bear Case
Coincidently, the support line and projection of 50 EMA (Blue ribbon) coincides. Since we had a weaker close, we may reject previous high this week and land in the support area, consolidating at key EMA level.
Market Sentiment and Key Indicators
Market sentiment remains predominantly bullish, with investors showing increased confidence in the Federal Reserve's potential rate cut next week. The VIX, often referred to as the fear gauge, has dropped significantly, indicating reduced market anxiety.
Fed Funds Futures: Market participants are now pricing in a 98% chance of a quarter-point rate cut next week, up from 86% before the latest inflation report.
Treasury Yields: The yield on 10-year Treasuries dropped to 4.22%, reflecting changing interest rate expectations and increased bond market optimism.
Key Takeaways & What’s Next
Federal Reserve Meeting
All eyes are on the Federal Reserve's policy meeting scheduled for December 17-18. Market expectations for a rate cut have surged, with a 96% probability priced in for a 25 basis point reduction.
Inflation Outlook
The latest CPI data showed inflation rising to 2.7% in November, slightly above the Fed's 2% target. While this increase was in line with expectations, persistent inflationary pressures may influence the Fed's future rate decisions.
Technical Levels
The S&P 500's ability to sustain levels above 6,080 will be crucial for maintaining bullish momentum. A definitive break above the current all-time high could trigger further buying interest and potentially push the index towards new record territory
Closing Thoughts
With the Nasdaq breaking 20,000 and the S&P 500 on the cusp of a new record, are we witnessing the start of another leg up in this bull market, or is caution warranted at these lofty levels?
What’s your take on market tomorrow? Comment below.