S&P 500
broad market index futures are rising by 4.5% to 5978 points this week. This huge
jump could easily become a record one since October 29, 2023. Then it happened
after a 10% correction, which is not the case now. This could eventually limit
the rally.
The rally
was reignited by the presidential elections in the United States on Tuesday.
First, it was an expected ending of the political uncertainty that was
accompanying the election process. Then the republican Donald Trump was gaining
the lead and eventually became a president elected. Trump has become a second
president in U.S. history that was elected after a break for the second term. Such
success story largely inspired investors. Everybody recall that Trump was dragging
the stocks indexes up throughout his entire first term as the U.S. President.
Everybody expect he will nurture the stock market this time too.
The S&P
500 index updated its all-time highs on Wednesday, and on Thursday too. It may
easily continue climbing to the extreme targets at 6100-6200 points that are
now just a click away. The benchmark is hovering around 5978 points with the
latest historical record at 5984 points. It is only 2% away from the upside target.
Thus, these extreme targets are highly likely to be met next week. But
macroeconomic data is demonstrating a clear cooling of the American economy. October
service PMI came out worse-than-expected, jobless claims are rising. Together
with the disastrous Nonfarm Payrolls last week this raises concerns over sustainability
of the market rally.
U.S.
10-year benchmark Treasuries yields jumped to 4.47%, the highest since July 1,
2024. Borrowing costs demonstrated an impressive 71 basis points rise for the
month to date.
It seem
that investors are experiencing a duality after Trump has won the elections. On
the one hand, they are expecting the stock market to rally enjoying a support from
the newly elected president. On the other hand, everybody understand that Trump
would tighten trade tariffs on China, the European Union, Japan, Mexico and
other prompting them to counteract accordingly. They could even start selling
some of the U.S. debt in response. This will lead to rising borrowing costs.
Thus, investors may support the rally in a short term, but expect uncertainty or
even some negative developments in the longer run. Many believe that Trump
could have benefited from the market downturn now. In this case, the Federal
Reserve (Fed) would have to cut interest rates faster that would lead to a
weaker Dollar, and lower U.S. trade deficit. So, investors have to be cautious
after the S&P 500 index jumps above 6100-6200 points barrier.
Meanwhile
large investors support the rally. The SPDR S&P 500 ETF Trust (SPY) reported
net inflows of $3.39 billion this week. Could it sound overoptimistic?
October inflation and
retail sales numbers will be released next week accompanied by the Fed’s Chair
Jerome Powell testimony. This week the Fed has signalled caution waving concerns
over stubborn inflation. New data could firm this concern prompting a possible pause
in the monetary easing trajectory.
From a technical
standpoint, the outlook for the S&P 500 index has improved. The benchmark has
surpassed primary targets at 5700-5800 points and restarted the rally toward
the 6100-6200 extreme targets. The next resistance lies at 6000-6020 points.
In the commodities
market, Brent crude oil prices have recovered their 7% drop of the last week.
Iran has promised to strike back on Israel. The Organization of the Petroleum
Exporting countries and its allies known as OPEC+ once again delayed oil
production cuts. The nearest resistance is at $78.00-80.00, while the support
is at $70.00-72.00 per barrel. Further trajectory will largely depend on the
next moves of the U.S. president elected.
Gold prices have
passed the resistance at $2,710-$2,730 per troy ounce and retreated by 3.1% to
$2,696. If they manage to rise above $2,710-2,730 per ounce once again the
rally towards $2,870-2,890, with potential highs of $3,200-$3,300 per ounce may
resume.
In the currency
market, the EURUSD unexpectedly lost 1.4% to 1.06820, the lowest since June 27.
The Greenback has erase its gains completely vs some reserve currencies by the
end of the week. The EURUSD is likely to follow. The pair is trading around
1.07800 now.