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S&P 500 Futures Surge: TSMC’s Results and Treasury Yields Play Key Roles

/ January 18, 2024

Thursday witnessed a marginal uptick in U.S. stock index futures as Asian market concerns eased, accompanied by a dip in Treasury yields. Current Futures Activity: On the prior day, the Dow Jones Industrial Average (DJIA) declined by 94 points or 0.25% to 37267. The S&P 500 (SPX) witnessed a 27-point drop or 0.56% to 4739, while the Nasdaq Composite (COMP) slipped by 89 points or 0.59% to 14856. Market Influences: Market movements continue to be influenced by bond market dynamics. The positive aspect for equity enthusiasts is the gradual decline in Treasury yields, providing a stabilizing effect on index futures. The S&P 500 has faced volatility at the beginning of the year, stepping back from recent highs as investors adjusted their expectations concerning potential interest rate cuts. This adjustment has led to increased implied borrowing costs. The 10-year Treasury yield (BX:TMUBMUSD10Y) rose over 30 basis points from its December 27 low of 3.8% by midweek. This rise was fueled by central bank officials pushing back against rate-cut expectations and a surge in response to robust U.S. retail sales data. The noteworthy tight correlation between bond and equity markets in 2024 may not persist indefinitely, according to historical patterns. Presently, both markets experienced a sell-off as investors scaled back expectations for imminent rate cuts. Traders are adjusting their expectations for a 25 basis point rate cut by the Federal Reserve at its March meeting, with the probability decreasing from 73.3% a week ago to 63%. U.S. futures found support from the improved performance of Asian markets. Hong Kong’s Hang Seng (HSI) rebounded by 0.75%, recovering from a 3.7% plunge on Wednesday. The Shanghai Composite (SHCOMP) also regained stability with a 0.4% gain. Taiwan Semiconductor Manufacturing Company (2330, +1.20%) exceeded analyst forecasts, potentially providing support to the Nasdaq Composite index in the U.S. The ongoing mixed earnings season includes reports from Fastenal (FAST, -0.61%), First Horizon (FHN, -0.23%), and KeyCorp (KEY, -0.57%) before the opening bell. After the close, PPG Industries (PPG, -0.47%), J.B. Hunt Transport Services (JBHT, +0.40%), and First National Bank (FNB, -0.61%) are set to report. Scheduled U.S. economic updates for Thursday include weekly initial jobless claims, the January Philadelphia Fed manufacturing survey, and December housing starts and building permits, all at 8:30 a.m. Eastern. Atlanta Fed President Raphael Bostic is slated to speak on the economic outlook at 7:30 a.m. and again at 11:30 a.m. John PaulJohn Paul is the founder of DayTradeToWin, a trading education and software company established in 2008, supporting traders worldwide. His expertise focuses on price action-based futures trading strategies and structured market analysis. DayTradeToWin delivers trading education, indicators, and software tools designed to help traders apply disciplined, rule-based decision-making across global futures markets. He is the creator of multiple trading methodologies, including the Sonic System, Atlas Line, and Trade Scalper, which help traders identify structured opportunities in markets such as the E-mini S&P 500 (ES), Nasdaq (NQ), crude oil (CL), and gold (GC). Official website: https://daytradetowin.com daytradetowin.com

Market News

Dow in the Red: Wall Street Reacts to Fed’s Waller’s Cautious Stance on 2024 Rate Changes

/ January 17, 2024

The US stock market ended on Tuesday with a decline, as investors weighed corporate earnings and a statement from a Federal Reserve member suggesting a decreased necessity for future interest rate cuts. How stocks traded Last week, stock prices saw an increase, with the S&P 500 finishing on Friday just 0.3% below its all-time high closing point. What drove markets Traders approached the start of the week with caution as they assessed recent financial results from banks and negative updates about manufacturing. Moreover, they were reminded that there might not be any immediate plans for reducing interest rates. Christopher Waller, a member of the Federal Reserve board, announced on Tuesday that the central bank is likely to lower interest rates in the near future. However, he stressed the importance of not rushing the changes in monetary policy. Consequently, following his remarks, stock prices experienced a decline and bond yields saw an increase. Investors paid attention when Waller, who is famous for being more assertive, expressed worries about the potential of an economic slowdown that required actions to control inflation. The chances are very likely that the Federal Reserve will postpone making any adjustments to its policies during the January meeting. However, according to the CME FedWatch tool, there was a 68% possibility that interest rates would be reduced by 25 basis points in March. Following Waller’s remarks on Tuesday, this probability slightly dropped to 63%. According to Quincy Krosby, the chief global strategist at LPL Financial, the concept of a shifting market was already being talked about in March. Krosby noted that Federal Reserve officials, including Waller who is usually viewed as pragmatic and careful, now appear to be conveying a unified message to the markets, urging them to be cautious instead of acting hastily. Krosby states that the likelihood of a March interest rate decline is contingent upon the data received and the impact of escalating oil prices caused by issues in the Middle East. As investors start to receive fourth-quarter earnings, they are also getting new information about the future prospects of the economy. Goldman Sachs, Morgan Stanley, and PNC Financial Services disclosed their financial performance on Tuesday prior to the stock market’s opening. Additionally, Interactive Brokers and Pinnacle Financial Partners will be unveiling their earnings reports later in the day. Following the commencement of earnings season last Friday, JPMorgan Chase & Co. JPM, -0.63%, along with other prominent banks, disclosed their financial statements. The experts at BlackRock Investment Institute state that the markets can be significantly influenced by earnings. According to Jean Boivin, the leader of the BlackRock Investment Institute, the authors believe that there will be a greater focus on earnings this year compared to last year, as consensus expectations have risen. Data from LSEG suggests that there is an expected growth rate of up to 11% in the next year. The authors propose that the earnings season in the fourth quarter of 2023 will offer more clarity on the progression of these expectations. According to Boivin and his colleagues, even though companies are currently maintaining their profit margins, they anticipate that these margins will eventually revert back to average levels. This is likely to happen as a result of rising interest rates, ongoing wage growth, and decreasing inflation, which, though still higher than the desired target, is gradually decreasing. According to Krosby from LPL, markets are worried about how much control companies have over prices. There was more manufacturing data from the United States on Tuesday that needed to be considered. The factory index of the New York Federal Reserve dropped significantly from -14.5 in December to -43.7 this month, which is the lowest level since May 2020. It is crucial to assess whether these figures hold any major or minor importance. Investors should consider geopolitical conflicts as well. The heightened tensions in the Middle East have raised worries about potential disruptions in shipping through the Red Sea, which could lead to inflationary pressures. However, oil futures observed a decline on Tuesday. Companies in focus John PaulJohn Paul is the founder of DayTradeToWin, a trading education and software company established in 2008, supporting traders worldwide. His expertise focuses on price action-based futures trading strategies and structured market analysis. DayTradeToWin delivers trading education, indicators, and software tools designed to help traders apply disciplined, rule-based decision-making across global futures markets. He is the creator of multiple trading methodologies, including the Sonic System, Atlas Line, and Trade Scalper, which help traders identify structured opportunities in markets such as the E-mini S&P 500 (ES), Nasdaq (NQ), crude oil (CL), and gold (GC). Official website: https://daytradetowin.com daytradetowin.com

Market News

Financial Forecast: Unraveling the Factors Behind Another Wall Street Bank’s Bullish S&P 500 Outlook

/ January 16, 2024

Investors are bracing for a cool reception after an extended holiday weekend, as stock futures dip alongside rising bond yields following hawkish remarks from European policymakers on Monday. While the expected victory of former President Donald Trump in Iowa has generated discussions about a potentially tumultuous election year (refer to the chart below), Tuesday brings optimism from a Wall Street bank that has revised its year-end stock outlook upward. A team of strategists at UBS, led by Jonathan Golub, now projects the S&P 500 to reach 5,150 by year-end, up from the previous estimate of 4,850. UBS’s outlook from the previous year had already signaled favorable conditions for stocks, citing strong earnings, easing inflation, accommodative monetary policy, and an improved economic landscape. Golub and his team attribute their revised outlook to the recent shift in the Federal Reserve’s stance, a subsequent decline in rate expectations, and above-trend 2024 earnings per share revisions. This optimistic scenario is now considered their base case, surpassing even UBS’s wealth management arm, which recently raised its index target to 5,000. The bullish stance from UBS comes amid a rocky start for stocks, as concerns mount that investors, fueled by overly optimistic Fed rate-hike expectations, rushed into the market. Nevertheless, the S&P 500 remains just 0.27% shy of its January 2022 record close as of Friday. The bank’s new S&P 500 target reflects a 7.7% upside from the current levels. Additionally, they have increased their 2024-25 earnings per share estimates to $225 (from $235) and $246 (from $250), respectively. Golub and his team highlight that their growth estimates of 6.3% and 6.4% over the next two years are more conservative than the consensus of 11.4% and 12.8%. They emphasize that while earnings are expected to drive 2024 returns, declining interest rates should support higher multiples. UBS’s new S&P 500 target places it among the top forecasts on Wall Street for 2024. Yardeni Research leads with a target of 5,400, while JPMorgan is more conservative at 4,200. Goldman Sachs, in late December, raised its forecast to 5,100 from 4,700, shortly after setting the initial target. The Markets John PaulJohn Paul is the founder of DayTradeToWin, a trading education and software company established in 2008, supporting traders worldwide. His expertise focuses on price action-based futures trading strategies and structured market analysis. DayTradeToWin delivers trading education, indicators, and software tools designed to help traders apply disciplined, rule-based decision-making across global futures markets. He is the creator of multiple trading methodologies, including the Sonic System, Atlas Line, and Trade Scalper, which help traders identify structured opportunities in markets such as the E-mini S&P 500 (ES), Nasdaq (NQ), crude oil (CL), and gold (GC). Official website: https://daytradetowin.com daytradetowin.com

Market News

Navigating Martin Luther King Jr. Day: Is the Stock Market Open Today?

/ January 15, 2024

This year, the annual celebration of Martin Luther King Jr.’s birthday aligns with the civil-rights leader’s actual birth date. On Monday, Americans will pay homage to the late Martin Luther King Jr., a pivotal figure in the civil-rights movement, as part of Martin Luther King Jr. Day. Established in 1983 as a federal holiday and first observed in 1986, this day honors King’s significant contributions to the struggle for racial justice. Falling on the third Monday of January, MLK Day coincides with King’s birthday this year. In July, Iowa Republicans designated Martin Luther King Jr.’s birthday as the date for their caucuses, marking the commencement of the presidential primary season. Here’s what to expect on this day: Stock and bond markets: U.S. stock exchanges will be closed, and bond markets will observe a holiday on Monday. Mail and packages: The U.S. Postal Service will not deliver mail, while FedEx may provide modified service in specific instances. UPS will not offer pickup or delivery services. Banks: Most banks are closed, but ATMs and banking apps remain available for transactions. Government offices: As a federal holiday, nonessential federal government offices and, typically, state government offices are closed. Schools: While schools are generally closed on MLK Day, it’s advisable to check with specific schools or school districts, as there may be exceptions. Stores: Many stores are likely to remain open on MLK Day, with some taking advantage of the occasion to promote sales. John PaulJohn Paul is the founder of DayTradeToWin, a trading education and software company established in 2008, supporting traders worldwide. His expertise focuses on price action-based futures trading strategies and structured market analysis. DayTradeToWin delivers trading education, indicators, and software tools designed to help traders apply disciplined, rule-based decision-making across global futures markets. He is the creator of multiple trading methodologies, including the Sonic System, Atlas Line, and Trade Scalper, which help traders identify structured opportunities in markets such as the E-mini S&P 500 (ES), Nasdaq (NQ), crude oil (CL), and gold (GC). Official website: https://daytradetowin.com daytradetowin.com

Market News

Market Watchers Beware: S&P 500’s Unusual Move Sparks Speculation of Major Shift Ahead

/ January 13, 2024

In 2023, despite initial concerns of a recession, the S&P 500 (SNPINDEX: ^GSPC) resiliently surged by 24%. The initial seven months witnessed a strong 20% increase, propelled by robust economic growth, subdued inflation, and a growing interest in artificial intelligence. However, the latter part of the year presented challenges. A three-month decline in August, September, and October ensued as bond yields rose, inflation increased, and the Federal Reserve indicated a prolonged period of elevated interest rates. The headwinds abated during the holiday season, concluding the year on a positive note. A significant accomplishment for the S&P 500 was its nine consecutive weekly gains at the close of 2023, marking its lengthiest winning streak since 2004. Historical trends suggest that such streaks often precede additional gains in the following year. Introduced in March 1957, the S&P 500 has encountered a total of 10 nine-week winning streaks, with the most recent ending in December 2023. Historical data indicates a median return of 12.2% for the S&P 500 over the 12 months following such streaks, hinting at a potential 12.2% increase by the end of 2024 and significant upside in the U.S. stock market. Nevertheless, caution is warranted, recognizing that historical data does not guarantee future outcomes. The recent winning streak, driven by economic predictions regarding future monetary policy, introduces unique circumstances that may impact the market differently this year. Another factor supporting optimism for the stock market in 2024 is the expectation of robust earnings. S&P 500 companies, after three consecutive quarterly profit declines starting in Q4 2022, concluded an “earnings recession” in Q3 2023. Projections for 2023 anticipate revenue growth of 2.3% and earnings growth of 0.8%. Wall Street consensus, however, foresees an acceleration in 2024, with revenue growth at 5.5% and earnings growth at 11.8%. This positive momentum suggests potential upward movement in the market, with a 9% upside from its current level, according to FactSet Research. Investors are reminded to consider the inherent uncertainty in forecasts, and while the odds of a positive return increase with a longer holding period, there are no guarantees in the stock market. The chart emphasizing the relationship between holding period and the probability of a positive return reinforces the idea that patience is a key element in achieving success in the stock market. Over the past three decades, the S&P 500 has exhibited consistent growth, compounding at an annual rate of 10.11%, underscoring the enduring principle that patience is indeed the secret to making money in the stock market. John PaulJohn Paul is the founder of DayTradeToWin, a trading education and software company established in 2008, supporting traders worldwide. His expertise focuses on price action-based futures trading strategies and structured market analysis. DayTradeToWin delivers trading education, indicators, and software tools designed to help traders apply disciplined, rule-based decision-making across global futures markets. He is the creator of multiple trading methodologies, including the Sonic System, Atlas Line, and Trade Scalper, which help traders identify structured opportunities in markets such as the E-mini S&P 500 (ES), Nasdaq (NQ), crude oil (CL), and gold (GC). Official website: https://daytradetowin.com daytradetowin.com

Market News

2024 Outlook: The ‘Pain Trade’ and its Impact on Stock and Bond Market Gains

/ January 12, 2024

Misjudging the timing of rate cuts poses a significant risk, caution TS Lombard strategists Amidst a robust “everything rally” driven by high expectations of Federal Reserve interest rate reductions to stave off a recession, the peril of inaccurately timing these cuts is underscored by Skylar Montgomery Koning and Andrea Cicione, strategists at GlobalData TS Lombard. While investors may accurately assess the scale of anticipated Fed rate cuts, the strategists advise that the real danger lies in misreading the timing. In a client note on Wednesday, they observed, “The market is an average of participants’ views and, caught between outcomes, appears to be pricing in a soft landing with ~140bp of cuts in 2024.” The GlobalData TS Lombard team argues that the roughly 200 basis points of rate cuts currently factored in for the entire easing cycle might be “too conservative rather than too aggressive,” particularly in the face of an economic downturn. However, the main concern revolves around the optimistic market movements anticipating an early batch of rate cuts in 2024. The strategists highlight the potential risk that the market might not witness the expected priced-in cuts, thereby reversing the 4Q23 trends of a weaker dollar, stronger fixed income, and improved equities. In the fourth quarter, the Dow Jones Industrial Average (DJIA) surged, achieving multiple record closes entering the new year. Similarly, the S&P 500 index (SPX) concluded Wednesday poised for its first record close in two years, according to Dow Jones Market Data. In the fixed income sector, the 10-year Treasury yield (BX:TMUBMUSD10Y) retraced to around 4% in the new year after reaching a 16-year high of 5% in October. The prospect of sudden increases in borrowing costs for a substantial portion of the U.S. economy prompted a downturn in stocks, briefly erasing earlier gains in major U.S. bond benchmarks. Despite the closely monitored Bloomberg U.S. Aggregate index boasting a 2.41% one-year return, with the iShares Core U.S. Aggregate Bond ETF (AGG) tracking a similar trajectory, the strategists caution of a potential sell-off if the market reevaluates Fed dovishness. In the currency realm, the ICE U.S. dollar index (DXY), measuring the greenback against a basket of rival currencies, experienced a 3.5% decline over the past three months, per FactSet data. This decline occurred despite the dollar achieving its best first four days in a new year in nearly a decade. While the dollar reached two-decade highs in 2022 during the Fed’s policy rate hikes, a shift toward rate cuts may lead to further weakening. The consensus anticipates a weaker dollar in 2024 due to substantial Fed cuts, with Koning and Cicione forecasting modest upside for the dollar. A weakened dollar can benefit major U.S. companies dependent on international sales, mitigating the impact of increased borrowing costs. However, Fed rate cuts could also diminish the appeal of assets tied to the dollar for investors seeking yield. John PaulJohn Paul is the founder of DayTradeToWin, a trading education and software company established in 2008, supporting traders worldwide. His expertise focuses on price action-based futures trading strategies and structured market analysis. DayTradeToWin delivers trading education, indicators, and software tools designed to help traders apply disciplined, rule-based decision-making across global futures markets. He is the creator of multiple trading methodologies, including the Sonic System, Atlas Line, and Trade Scalper, which help traders identify structured opportunities in markets such as the E-mini S&P 500 (ES), Nasdaq (NQ), crude oil (CL), and gold (GC). Official website: https://daytradetowin.com daytradetowin.com

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