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Market Surge to Record Heights: S&P 500 Peaks Amidst Strong Economic Growth and Subdued Inflation

Daily Market Update - (Daniel Ang)

In an extraordinary display of strength, the S&P 500 closed at an unprecedented high for the fifth consecutive session, propelled by robust U.S. economic growth data for Q4. Despite Tesla’s fall following a sales forecast miss, the market’s upward trajectory remained unhampered.

Key Points:

  • 📈 S&P 500’s Record Streak: The index marked a new all-time high, soaring 0.53% to close at 4,894.16, continuing its upward momentum after a two-year wait.
  • 📊 U.S. Economic Data Surprises: Q4 GDP growth exceeded expectations at 3.3%, outpacing the predicted 2.0%. Personal spending rose sharply, and core PCE inflation eased to its lowest since March 2021.
  • 💱 Forex Fluctuations: The Dollar Index dipped amidst modest inflation, hinting at a potential mid-year Fed rate cut. Major currency pairs showed mixed movements, with the Japanese yen and euro experiencing notable shifts.

The stock market witnessed the S&P 500 Index reaching new heights, ending Thursday’s session on a high note. This surge was primarily fueled by the latest U.S. economic data, suggesting a resilient economy.

The Q4 GDP report, released last Friday, revealed an unexpected 3.3% increase in real GDP, significantly surpassing the forecasted 2.0%. Personal spending also showed remarkable growth, registering a 0.7% rise, double the anticipated figure. These figures indicate a robust economic environment, bolstering investor confidence.

Inflation, as measured by the PCE Price Index, presented a mixed picture. While the overall index saw a year-over-year increase of 2.6%, unchanged from November, the core PCE Price Index – a key measure excluding food and energy – decelerated to 2.9%, marking the lowest rate since March 2021.

The stock market responded positively to these developments. The S&P 500 climbed 0.53%, closing at 4,894.16 points. The tech-heavy Nasdaq Composite also edged higher by 0.18%, settling at 15,510.50 points. The Dow Jones Industrial Average wasn’t left behind, witnessing a 0.64% increase to 38,049.13 points.

Currency markets saw the U.S. Dollar losing ground, primarily due to the modest rise in December inflation, aligning with expectations of a Fed rate cut around mid-year. The Dollar Index marginally declined by 0.1%, standing at 103.41. Notably, the USD/JPY pair increased by 0.3% to 148.06, yet marked its largest weekly decline since late December.

The Euro and British Pound experienced varied fortunes. While EUR/USD rebounded from a six-week low, closing up by 0.1% at 1.0856, the GBP/USD slightly dipped to 1.2702, with investors cautiously awaiting the Bank of England’s upcoming interest rate decision.

Commodity markets weren’t immune to these dynamics. Escalating tensions in the Middle East, particularly the Houthis’ intensified attacks in the Red Sea, significantly impacted oil prices. Both WTI and Brent crude experienced a surge, with prices climbing to $78.22 and $83.19 per barrel, respectively.

Gold trading, however, remained volatile, fluctuating within a $10 range. The anticipation of a delayed Fed rate cut and the likelihood of sustained high rates have led analysts to predict potential dips in gold prices leading up to March. Spot gold closed last Friday at $2,018.60 per ounce, with COMEX gold futures almost mirroring this at $2,017.30 per ounce.

In the realm of digital assets, Bitcoin (BTC/USD) saw a notable increase over the weekend, briefly surpassing the $42,000 mark. Despite this surge, Bitcoin still lags approximately 15% behind its recent highs.

As the market braces for the upcoming Federal Open Market Committee meeting, analysts anticipate a resurgence of volatility, particularly in precious metal prices, setting the stage for a potentially pivotal week in financial markets.

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