Dow Jones, Nasdaq, S&P 500 weekly preview: Can this rally hold?

The S&P 500 (SPX) recorded its fifth consecutive candle last week (+0.8%), matching the May-June streak. The index is now testing the 2023 highs around 4600. A break above this level would pave the way towards the record highs around 4800 while a failure would increase the risk of a double top pattern.

The Dow Jones Industrial Average (DJI) added as much as 2.4% with the index now up more than 12% since October lows. This marks the biggest 5-week gain since last October. The DJI ended the week at 36245 as bulls eye a new record high above 36952. Finally, the Nasdaq Composite Index (IXIC) rose 0.4% after nearly posting a fresh 2023 high above 14446.

New recent highs for major indices came after traditionally hawkish Federal Open Market Committee (FOMC) members, including Fed Governor Christopher Waller and Cleveland Fed President Loretta Mester, adopted an unusually dovish tone in their public speeches.

NFP in focus

For this week, traders will pay closer attention to the JOLTS report on Tuesday and the ISM services data, both out on Tuesday.

“The ISM services gauge likely continued cooling in November, though it’s expected to remain in expansionary territory,” analysts at Bloomberg Intelligence said.

The NFP report for November is out on Friday. Prior to that, the report on initial jobless claims is out on Thursday.

“November’s job report will send mixed signals about the state of the labor market. A solid nonfarm payroll print following a resolution to the UAW strikes will contrast with a weak household survey, where we expect the unemployment rate to edge up to 4.0%. Our view is that the economy is likely in a turning point toward a recession,” the analysts added.

On the earnings front, the most notable reporters include AutoZone (NYSE:AZO), MongoDB (NASDAQ:MDB), Chewy (NYSE:CHWY), Broadcom (NASDAQ:AVGO), Lululemon (NASDAQ:LULU), and Dollar General (NYSE:DG).

What analysts are saying about US stocks

Analysts at Stifel: “We see the S&P 500 topping around 4,650 into mid-2024 as mega-cap Growth loses some ground to Cyclical Value (Banks, Capital Goods, Energy, Financial Services, Insurance, Materials, Real Estate and Transportation), as a result of economic growth, inflation and Federal Reserve tightness all proving resilient. We do not see the Fed cutting in 1H24.”

Analysts at Morgan Stanley: “The direction of equity markets continues to be influenced by the rate of change on bond yields which have been dictated recently by the bond market’s perception of future rate cuts. With ~130bps of cuts now priced through YE ’24, how much lower can rates go in the context of a soft landing?”

Analysts at JPMorgan: “While recession is not our base case, it doesn’t take much to tip the activity into contraction at such a low starting point. Crucially, unlike a year ago, when almost all economists and the market pricing had recession as a base case, both are in a soft landing camp now – perhaps one should be contrarian yet again.”

Analysts at Oppenheimer: “In our view the current year-end rally from the lows in October is constructive while nonetheless raises some concern that gains hastily achieved in just five weeks (in this fourth quarter of the year to new highs for the year) may have taken stocks near term to what will be seen as “overbought levels” requiring some pay back early next year.”

Analysts at Evercore ISI: “Equites have remained resilient amidst a package of headwinds. EPS has been supported by a stronger than expected Economy. Consensus’ recession worries have been replaced with Soft Landing as Pandemic stimulus has continued to support consumption. Valuations too have been supported by Generative AI and recently falling yields.”

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