The Federal Reserve minutes reaffirmed its cautious approach. Traders were focused on Nvidia Corporation after this year’s massive rally in large tech.
Shares of the world’s largest chipmaker fell in late trading after its latest projection failed to meet investors’ high expectations. The revenue for the current period is expected to be around 20 billion. Although this was higher than the average analyst’s estimate of $17.9 Billion, some projections were as high as $20 Billion. Nvidia, which has tripled in revenue this year, had a high bar set for it. There was little room to make a mistake.
After the S&P 500’s 6 trillion rally, fueled by Artificial Intelligence boom and Corporate America resiliency as well as bets that the Fed would pivot to rate reductions next year, the equity market lost steam. The index is now about 5% from its previous high.
Matt Maley is the chief market strategist of Miller Tabak + Co. He said that the stock market was once again priced to perfection.
The Fed minutes have just reinforced the latest message. Officials are not yet ready to declare victory, and they do not intend to ease their policy at this time, according to Quincy Krosby of LPL Financial.
Krosby said that the market’s current sluggishness is more of a result of a recent overbought condition than it is from a market misinterpreting what the Fed was saying. “Still the market still believes that the Fed has finished, and that rate cuts will be needed in 2024 regardless of what the Fed says.”
According to Dan Wantrobski at Janney Montgomery Scott, the short-term charts of the S&P 500 currently show a negative divergence in price (approaching recent highs from 2023) and momentum.
Wantrobski said: “This is an indication that the buying power of the market is weakening, even as it looks like the S&P will test the low-4600 area.” The markets are vulnerable to consolidation and profit-taking in the short term. We also believe they are still vulnerable to elevated volatility/correction within the first half of 2024.”
Goldman Sachs Group Inc. data shows that hedge funds have their highest concentration of bets on US equity in 22 years. Goldman’s “Hedge Funds VIPs” list for this quarter shows that the most popular bets are still in megacap tech. Microsoft Corp. Amazon.com Inc. Meta Platforms Inc. were all on Goldman’s top 10 list.
Savita Subramanian, a Bank of America Corp. analyst, believes that the S&P 500 will reach a new high by 2024 as US companies have adjusted to higher interest rates and survived macroeconomic shocks. She believes the gauge will reach a new high of 5,000 at the end 2024. This is about 10% more than the close on Tuesday. She said that next year will be “a stockpicker’s paradise”.
Stephen Suttmeier, BofA’s technical strategist, said that US stocks have “much more upside” potential as they approach bullish breakouts. The S&P 500 would need to surpass the low 4,600s in order to confirm the “bullish cup-and-handle” pattern that began early 2022. This would trigger more gains.
Solita Marcelli, UBS Global Wealth Management, said: “Our base-case is that equity prices will continue to rise modestly in 2024. The S&P 500 Index should end the year at around 4,700.” As inflation and growth continue to moderate, we’re even more optimistic about quality fixed income. “But an unusually large range of risks can still ruin the outlook.”
Investors resisted the temptation to sell 10-year Treasury Inflation Protected Securities due to this month’s strong rally and outflows of exchange traded funds that track the sector.
US bond managers who oversee $2.5 trillion in combined assets have some advice for investors with record amounts of cash: it’s time to invest that money. Capital Group, DoubleLine Capital and Pacific Investment Management Co. have this message.
Inflation and growth are slowing down, which has fueled an increase of 3.6% in November. This leaves a return for 2023 of around 0.7%. This is still far below what cash earned in 2018. It shows how a real turn-around could be achieved after a year of head fakes about price pressures and Fed policies.
If people are moving to cash due to 5% interest rates, then we may see this money trickling back in the markets very soon. Callie Cox, eToro, said that the Fed is preparing to cut rates in March.