Weekly Market Watch
Topics
- Overview
- Key Market Levels
- This Week / What We Are Watching
Outlook
Market Outlook:
The S&P 500 hit a new all-time record close last Thursday, after Federal Reserve Chair Jerome Powell said the central bank was "not far" from being able to cut interest rates. Before Powell’s comments last week, investors were starting to wonder if there was a growing possibility that the Fed wouldn’t cut rates at all this year because of a few hiccups in recent CPI inflation readings. The comments from Powell though helped ease those concerns as the base case remains for the Fed to start cutting this mid-summer.
Friday's employment news threw some uncertainty into the mix. The economy added 275k jobs in February compared to the 198k expected but wage growth slowed, and jobless claims edged up. Some investors saw that as a negative, while others viewed it as a “Goldilocks” moment, meaning an economy that’s not too hot or cold. Stocks initially rallied on the news, but profit-takers prevailed by the end of the session.
Turning to the current week, the S&P 500 climbed to its 17th record high close of the year as investors shrugged off Tuesday’s hotter than expected CPI inflation reading. The February Consumer Price Index (CPI) showed an inflation pick-up but not enough to derail market convictions that the Fed remains on a path to lower interest rates. Overall February CPI rose 0.4%, a slight acceleration from January's 0.3% gain while the core CPI, which removes food and energy prices, also advanced 0.4%, above forecasts for a 0.3% increase.
Revived strength in semiconductors and other technology and communication services companies helped buoy the market despite the CPI miss, highlighted by Oracle (ORCL), which surged over 12% after quarterly results released late Monday.
Is the Magnificent Seven Too Expensive? (CHART)– LPL put out some helpful data that pushes back against the narrative that the Magnificent-7 stocks are in bubble territory. Those stocks include: Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla.
- Removing the Magnificent Seven from the S&P 500 only takes its P/E down to 18.2 from 20, so its valuation impact is not as significant as one might think.
- The group trades at a price-to-earnings ratio (P/E) of 29.7 according to Bloomberg data, well above the S&P 500 at just over 20.2 on a forward earnings basis (Figure 2). If that sounds high, it is, but the premium of this group to the market’s P/E has remained relatively stable in recent years, averaging 60% in 2021, 51% in 2022, 57% in 2023, and 55% year to date.
- Also, consider tech sector valuation premiums were well over 100% around the peak of the dotcom bubble.
Market Pullback Data (CHART) – The S&P currently feels like it is losing some short-term momentum after its incredible 4-month run, which could translate into some sort of pullback in the coming weeks/months although this isn’t a guarantee either.
- Recall pullbacks are completely normal and healthy in bull markets and provide buying opportunities for investors.
- The below chart quantifies the typical number of pullbacks in a given year sorted by different buckets on severity.
- As you can see, the S&P 500 typically has about 3 pullbacks of 5-10% per year on average and recall the S&P 500’s largest average intra-year pullback is 14%.
Market Support & Resistance Levels
The next level of resistance to watch for the S&P 500 on the upside is at 5,700.
The next level of support to watch for the S&P 500 on the downside is at 4,800 followed by 4,600.
This Week / What We Are Watching
The following economic data is slated to be released during the week ahead:
Monday: --
Tuesday: CPI Inflation data (Feb.)
Wednesday: --
Thursday: Weekly Initial Jobless, Retail Sales (Feb.), PPI Inflation data (Feb.)
Friday: Industrial Production (Feb.), Univ. of Mich. Consumer Sentiment (Mar. Prelim.)
Archive
Market Watch - February 27, 2024
Market Watch - February 21, 2024
Market Watch - February 13, 2024
Market Watch - February 7, 2024
Market Watch - January 31, 2024
Market Watch - January 24, 2024
Market Watch - January 18, 2024
Market Watch - January 10, 2024
Market Watch - December 28, 2023
Market Watch - December 19, 2023
Market Watch - December 12, 2023
Market Watch - December 6, 2023
Market Watch - November 28, 2023
Market Watch - November 21, 2023
Market Watch - November 15, 2023
Market Watch - November 7, 2023
Market Watch - October 31, 2023
Market Watch - October 25, 2023
Market Watch - October 18, 2023
Market Watch - October 11, 2023
Market Watch - October 3, 2023
Market Watch - September 27, 2023
Market Watch - September 19, 2023
Market Watch - September 13, 2023
Market Watch - September 6, 2023
Market Watch - August 30, 2023
Market Watch - August 23, 2023
Market Watch - August 16, 2023
Updates Regarding News Headlines: SVBank
Market Watch - January 25, 2023
Market Watch - January 19, 2023
Market Watch - January 4, 2023
Market Watch - December 20, 2022
Market Watch - December 14, 2022
Market Watch - December 6, 2022
Market Watch - November 30, 2022
Market Watch - November 23, 2022
Market Watch - November 16, 2022
Market Watch - November 8, 2022
Market Watch - October 31, 2022
Market Watch - October 25, 2022
Market Watch - October 18, 2022
Market Watch - October 10, 2022
Market Watch - October 3, 2022
Market Watch - September 27, 2022
Market Watch - September 22, 2022
Market Watch - September 13, 2022
Market Watch - September 6, 2022
Market Watch - August 30, 2022
Market Watch - August 23, 2022
Market Watch - August 17, 2022
Mid Year Outlook - August 8, 2022
Market Volatility Update - June 21, 2022
Market Volatility Update - May 6, 2022
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Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.