U.S. Major Stock Indexes Hit Record Highs Amidst Fed Rate Cut Speculation

U.S. stock index futures saw minimal movement on Monday evening after the Nasdaq hit record highs, driven by strong technology stock purchases. Investors are now focused on Nvidia's upcoming earnings report, expected to show significant revenue growth, and are also cautious about potential interest rate changes due to persistent inflation concerns voiced by Federal Reserve officials.

Last week, the Dow closed above 40,000 for the first time, and stock futures continued to edge higher. Recent economic data suggesting a cooling economy has fueled hopes that the Fed might lower interest rates by September, boosting the S&P 500 and Nasdaq to new highs.

The S&P 500 technology index led gains, supported by a rise in chipmakers like Nvidia. The Dow dipped slightly after its record close, but overall, strong earnings and cooling inflation have raised hopes for Fed rate cuts, pushing major stock indexes to record levels. Nvidia's earnings report is crucial for maintaining its growth trajectory, especially as the semiconductor sector showed significant gains.

Despite optimistic market moves, concerns about stock valuations are growing, with the S&P 500 trading well above its historical average price-to-earnings ratio.

Deutsche Bank has increased its 2024 year-end target for the S&P 500 to 5,500, the highest among major brokerages, citing strong corporate earnings. Deutsche Bank also raised its earnings per share (EPS) forecast for S&P 500 companies to $258, expecting further growth to $271 if economic conditions remain favorable.

In contrast, JPMorgan Chase & Co. maintains a bearish outlook on equities, advising clients that stocks are not an attractive investment due to high valuations and tight credit spreads. They also cite restrictive interest rates, high inflation, consumer stress, and geopolitical uncertainty as factors supporting their cautious stance.

Morgan Stanley's strategists, however, predict the S&P 500 will reach 5,400 by June 2025, revising up from an earlier target of 4,500 for December this year. Morgan Stanley's new 12-month target price for the S&P 500 reflects a 19x price-to-earnings (P/E) multiple on forward earnings per share of $283 by June 2026.

Morgan Stanley's strategists also highlight the potential for AI to boost margins, particularly benefiting sectors such as Software & Services, Consumer Services, Health Care Equipment & Services, Financial Services, and Media & Entertainment. The firm prefers Japanese and European equities due to attractive valuations and resilient earnings, while maintaining selectivity in emerging markets, with a focus on India and semiconductor technology in Korea and Taiwan.

The Federal Reserve is set to release the minutes of its latest meeting, and several Fed officials will deliver remarks this week. However, Fed officials caution that more evidence is needed to confirm a downward trend in inflation before cutting rates, potentially starting in September. Investor attention is also on durable goods and consumer sentiment data for further signs of economic moderation, which could justify Fed rate cuts this year.

Nvidia, a key player in the AI industry, is scheduled to report earnings on Wednesday this week, and is expected to influence U.S. stock markets, particularly in the AI sector. The company's shares have surged nearly 92% this year due to high expectations for its AI-specialized graphics processing units. Nvidia anticipates significant revenue growth, driven by its data center unit, with analysts forecasting a rise in earnings per share to $5.57 from $1.09. The earnings report will be closely watched, as comments from CEO Jensen Huang and competition from other chipmakers and tech giants like Google and Amazon could impact Nvidia's future prospects. Therefore, it may influence the overall U.S. stock market, potentially creating a slight positive trend amidst volatility and the risk of a downturn.

Data for Technical Analysis (1H) CFD US 500 [S&P 500]

Resistance : 5310.1, 5310.8, 5311.9

Support : 5307.9, 5307.2, 5306.1                      

1H Outlook

Source: TradingView                                                          

Buy/Long 1 If the support at the price range 5304.9 - 5307.9 is touched, but the support at 5307.9 cannot be broken, the TP may be set around 5310.1 and the SL around 5303.4, or up to the risk appetite.

Buy/Long 2 If the resistance can be broken at the price range of 5310.1 - 5313.1, TP may be set around 5315.5 and SL around 5306.4, or up to the risk appetite.       

Sell/Short 1 If the resistance at the price range 5310.1 - 5313.1 is touched, but the resistance at 5310.1 cannot be broken, the TP may be set around 5307.2 and the SL around 5314.6, or up to the risk appetite.

Sell/Short 2 If the support can be broken at the price range of 5304.9 - 5307.9, TP may be set around 5301.5 and SL around 5311.6, or up to the risk appetite.       

Pivot Points May 21, 2024 02:36AM GMT