The equity market is booming, and a lot of industry insiders and market players might have been taken by surprise. As leading market indices continue to rise, investors may be starting to feel the fear of missing out (FOMO).
20% gain has already been recorded by S&P 500 while the tech-heavy Nasdaq 100 is up by almost 46 percent so far in 2023. The S&P 500 climbed 8% last month, recording one of the best November gains over the last hundred years.
Will the show continue with the bulls in command leading to a Santa Claus rally by year-end, only time will tell. “A Santa Rally could supercharge markets to the end of the year. After November’s impressive run, we now expect the momentum to continue. We’ll likely see markets experience a Santa Rally taking us to the end of 2023,” says Nigel Green, CEO, deVere Group.
“Historically, December has been a good month for stock market
Much of the recent spike in stock prices can be attributed to expectations that the Federal Reserve will discontinue its aggressive rate-hiking program. “We would attribute a surge in stocks due to a plummet in bond yields that’s been triggered by increasing signals that central banks, including the Federal Reserve, the Bank of England
Recent declines in US consumer spending, inflation, and the labor market provide more proof that the US growth is progressively slowing down. The Fed’s preferred measure of underlying inflation, the core personal consumption expenditures price index, came in line with forecasts from economists.
As far as technical setup for the S&P 500 is concerned, here’s what Adam Turnquist, Chief Technical Strategist for LPL Financial says:
The index closed just shy of key resistance at 4,600—a level tracing back to the early 2022 highs and a spot where the summer rally struggled. A topside breakout would leave 4,632 and the 4,700 to 4,725 range as the next resistance hurdles to clear.
Participation in this rally continues to build. Over 2/3 of S&P 500 stocks are trading back above their 200-day moving average, with cyclical sectors registering the best breadth readings.
Momentum remains bullish; however, overbought conditions are becoming widespread, with nearly 1/3 of index constituents registering at least a 70 on their Relative Strength Index (RSI).
Overall, the technical backdrop is encouraging for a breakout above 4,600, although it may take a few attempts based on the degree of overbought conditions.”
The Fed is hugely expected to make at least one rate cut in the first six months of 2024. For many analysts, it’s a bull market until proven otherwise. “Investors may be in a state of denial, with bond yields continuing to plunge following the stay-the-course restrictive policy comments from Powell today. Perhaps investors have dismissed his presentation with hopes that he is on the verge of becoming more dovish and will reflect such sentiment at the next Fed meeting on December 13,” says José Torres, Senior Economist at Interactive Brokers.