The S&P 500 futures are down 0.2%, trading
at 5945 points, after opening positively on Monday. This decline raises
concerns about the index's ability to sustain an upside trajectory without a
significant correction before year-end. Investors are eyeing the potential for
a "Santa rally," a period typically spanning the last five trading
days of December and the first two of January, which historically averages a
1.3% gain for the index. For the S&P 500 to align with this pattern, it
would need to close above 6000 points on January 3. Achieving this scenario
without a correction would require replacing the current downside pattern with
an upside one targeting 6050-6150 points.
The optimistic outlook stems from Friday’s
inflation data surprise. The PCE Index, the Federal Reserve’s preferred measure
of inflation, rose 2.4% YoY in November, below expectations of 2.5%, while core
PCE held steady at 2.8% YoY, also underperforming the forecast of 2.9%. This
data contrasts sharply with the Fed's hawkish rhetoric delivered last
Wednesday. Such a discrepancy suggests the Fed's positioning may be influenced
by anticipated policies from the incoming U.S. administration. Speculation
revolves around potential tariff hikes by President-elect Donald Trump, which
could drive inflation higher and force the Fed into tighter monetary actions.
By maintaining a hawkish tone now, the Fed could be preemptively absorbing
potential market shocks. However, this strategy risks undermining the Fed's
credibility, as its policy could appear overly reactive to political
developments.
Market sentiment reflects this tension. The
SPDR S&P 500 ETF Trust (SPY) saw net outflows of $7.6 billion, reversing
prior inflows of $2.6 billion, largely due to the Fed's rhetoric. While
Friday's PCE data offers some relief, significant upside potential remains
constrained. Current price levels present limited opportunities, even with a
Santa rally. Speculative trades during this period should be exited by January
3 to mitigate risk, as the outcome is uncertain but not entirely unfavorable.
This week’s economic calendar is light, with
only U.S. labor market data on Thursday, which is unlikely to impact the market
significantly due to subdued trading during the Christmas holidays.
From a technical
perspective, the S&P 500’s outlook is unchanged. The index surpassed
initial targets at 5700-5800 points and hit the targets at 6050-6150,
retreating to the downside. The benchmark is targeting 5600-5700 points now
with the extreme downside targets at 5200-5300 points. The benchmark is
retesting the resistance at 5960-5980 points. Next resistance is located at
6060-6080 points.
In commodities, Brent
crude prices are hovering at $72.40 per barrel. The nearest resistance is at
$78.00-80.00, with support at $69.00-71.00. The Organization of Petroleum
Exporting Countries and its allies know as OPEC+ delayed production increase
until April 2025, as expected. Chances for a decline below the support towards
$59.00-62.00 per barrel have risen since then.
Gold prices are at
$2,616 per troy ounce this week. The nearest resistance is at $2,670-2,690,
while the support is at $2570-2590 per ounce. The upside scenario for gold
prices remains a priority scenario.
In the currency
market, the EURUSD rebounded from 1.03420 to 1.04470 before settling at
1.04000. A break above 1.05700 is required to confirm an upside scenario
targeting 1.09500-1.10500. Downside risk appears limited
barring extraordinary developments.