Can the S & P 500 Maintain Momentum as it Breaks Past 5,000?

Investors are closely watching the S & P 500 as it reaches a historic milestone, surpassing the 5,000 mark for the first time ever. While this number doesn’t hold technical significance, it does carry psychological weight for investors. The question now is whether stocks will continue to rally or face a potential breakdown.

Debate Among Investors

There are differing opinions among investors regarding the future direction of the market. Some believe that the expanding economy, albeit at a slower pace, will continue to drive earnings growth and push stock prices higher. On the other hand, some caution that the S & P 500’s milestone could be a reason for concern, especially considering the high valuations of mega-cap tech stocks. They point to rising bond yields as a worrying signal, with the 10-year Treasury yield reaching 4.15% this week.

Wharton Business School’s Jeremy Siegel believes that the market is not overvalued for long-term investors. He advises against short-term trading, stating that volatility is to be expected, but the market remains attractive for those with a long-term view.

However, investment strategist Karim El Nokali urges caution, noting that historically, the market tends to experience retracements when it encounters significant round numbers. It remains to be seen whether the S & P 500’s upward momentum will continue.

Better Data Supports Bullish Outlook

The recent optimism in the market can be attributed to better-than-expected earnings results and indications of easing inflation, a stronger labor market, and a resilient economy. Approximately two-thirds of S & P 500 companies have reported fourth-quarter earnings, showing signs of strength after a lackluster start to the season. S & P 500 earnings are projected to have risen by 2.8% in the fourth quarter, marking the second consecutive quarter of earnings growth. This positive momentum is expected to continue in the coming weeks.

Notable earnings releases in the upcoming week include Arista Networks, Marriott International, Occidental Petroleum, Deere, and Applied Materials. Additionally, investors will be keeping an eye on inflation data, as well as the Federal Reserve’s actions, to assess the market’s performance.

Concerns Over Market Divergence

There are growing concerns about the divergence between mega-cap companies and the rest of the market. While the S & P 500 has experienced a 5% increase this year, driven in part by a more than 40% rise in Nvidia’s stock, the equal-weighted S & P 500, which gives equal weight to each stock regardless of market capitalization, has only seen a 0.6% increase. Additionally, the small-cap Russell 2000 index is down nearly 1% this year.

Some experts believe that this divergence may indicate a nearing drawdown in the market. However, as long as the S & P 500 remains above support levels at 4,800, the overall trend is still expected to be positive.

Looking Ahead

As investors navigate through 2024, there are various factors that may impact market performance, including geopolitical risks, political tensions, and regional banking concerns. Investors are seeking more clarity on the economy, earnings, and the Federal Reserve’s decisions before making definitive predictions on how stocks will perform.

With several upcoming economic indicators and earnings reports, market participants will be closely monitoring the data to gain insights and make informed investment decisions.

Week Ahead Calendar

All times are Eastern Time.

Monday, February 12, 2024

• 2 p.m. – Treasury Budget (January)
• Earnings: Arista Networks, Waste Management

Tuesday, February 13, 2024

• 6 a.m. – NFIB Small Business Index (January)
• 8:30 a.m. – CPI (January)
• Earnings: MGM Resorts International, Airbnb, Welltower, Akamai Technologies, Marriott International, Howmet Aerospace, Molson Coors Beverage, Coca-Cola Co., Hasbro, Ecolab, Biogen

Wednesday, February 14, 2024

• Earnings: Occidental Petroleum, Albemarle, Kraft Heinz, Generac

Thursday, February 15, 2024

• 8:30 a.m. – Continuing Jobless Claims (02/03)
• 8:30 a.m. – Export Price Index (January)
• 8:30 a.m. – Import Price Index (January)
• 8:30 a.m. – Initial Claims (02/10)
• 8:30 a.m. – Empire State Index (February)
• 8:30 a.m. – Philadelphia Fed Index (February)
• 8:30 a.m. – Retail Sales (January)
• 9:15 a.m. – Capacity Utilization (January)
• 9:15 a.m. – Industrial Production (January)
• 9:15 a.m. – Manufacturing Production (January)
• 10 a.m. – Business Inventories (December)
• 10 a.m. – NAHB Housing Market Index (February)
• Earnings: Deere, Applied Materials

Friday, February 16, 2024

• 8:30 a.m. – Building Permits preliminary (January)
• 8:30 a.m. – Housing Starts (January)
• 8:30 a.m. – PPI (January)
• 10 a.m. – Michigan Sentiment preliminary (February)