Weekly Summary: Big Tech Saves S&P 500

The S&P 500 broad market index futures rose by 0.9% to 4929 points this week. The benchmark was higher on Thursday as it hit 4940 points, an all-time high.

However, it was not that easy for the index to pinpoint a new record, as it was under pressure during the first half of the week. Both Alphabet (GOOG) and Microsoft (MSFT) disappointed investors with weak Q4 2023 earnings reports. Their stock prices fell on the news by 8.0% and 4.0% respectively.

The Federal Reserve (Fed) added some stress leaving its interest rates unchanged at 5.50%. The Fed’s Chair Jerome Powell scared investors by saying that the Fed would not be ready to lower its rates in March. I don’t think it’s likely that we’ll reach a level of confidence by the time of the March meeting. I don’t think that’s the base case, he said. No macroeconomic data would overshadow these words. Investors lowered their bets on interest rate cuts in March to 34.5% compared to 76.0% in early January.

The S&P 500 index fell under pressure between the devil and the blue sea, from the hawkish tone of the Fed and weak reporting by stock market leaders. The benchmark fell by 1.3% to 4847 points. This was the largest single day drop since December 20. The rest of the 'Magnificent seven' stepped forward to save the benchmark from sinking. Apple (AAPL), Meta (META), and Amazon (AMZN) beat expert consensus. The index surged to new records.

Stocks will be challenged by the U.S. labour market report on Friday. Analysts expect the market to cool down. Unemployment may rise to 3.8% from the 3.7% in December. Average hourly earnings are expected to slow down to 0.3% MoM against 0.4% in the previous month. Nonfarm Payrolls may drop to 187,000 from 216,000 in December. Our modelling suggests that Nonfarm Payrolls could be in the range between 150,000 and 190,000. The unemployment level has equal chances to remain at 3.7% and to edge higher to 3.8%. If these calculations are accurate, we may have a moderate slowdown of the labour market. This may increase expectations of the prompt dovish shift in Fed’s monetary policy. The S&P 500 index will receive another chance for an upside, while the U.S. Dollar will have a fundamental reason for a decline. Moreover, it seems that the Greenback has already started its downside correction on Thursday.

The S&P 500 broad market index has reached the final upside target at 4850-4950 points. While potential reversal patterns should be anticipated, the first has emerged already. It signals a standard correction of 5-7% within the next two months. The starting point of this correction is not yet defined.

Oil prices are stalling. They failed to breakthrough the resistance at $82.00-84.00 per barrel of Brent crude and rolled back to $78.90. Tensions in the Middle East have eased amid peace process between Israel and Hamas. The nearest support is at $72.00-74.00 per barrel.

Gold prices, which previously reached mid-term upside targets at $2000-2100 per troy ounce, have bounced from the support at $2010-2030 per ounce. A potential technical weakness period could lead gold prices to $1920 if the support at $2010 per ounce is breached.

The U.S. Dollar is weakening. Another wave of the upcoming downside correction for the Dollar that was expected seems to have been started on Thursday. It is risky to bet on the rising EURUSD, but if the pair moves to the 1.11500-1.12500 area, it will create good short opportunities.