As the S&P 500 hits new highs, concerns arise over the limited participation of stocks in the rally. We’ll delve into key market indicators, currency movements, commodity shifts, and cryptocurrency fluctuations shaping today’s financial landscape.
3 Major Takeaways
- Market Breadth Concerns: Despite the S&P 500 reaching new highs, the rally’s breadth has been narrowing, with fewer stocks participating. This raises concerns among investors about the sustainability of recent gains, particularly if market leaders encounter setbacks.
- Economic Data Impact: Investors are closely watching upcoming U.S. consumer price data to assess the potential for an inflationary rebound. The release of the Consumer Price Index (CPI) is anticipated, with implications for expectations regarding Federal Reserve rate cuts.
- Geopolitical and Supply Factors: Tensions in the Middle East, including Israeli airstrikes on Gaza and drone attacks on Russian oil refineries by Ukraine, have contributed to supply concerns and boosted oil prices. Additionally, ongoing geopolitical events could continue to impact energy markets and broader market sentiment.
The S&P 500 surged to fresh highs last Friday, but concerns arose as fewer stocks participated in the rally, raising worries about potential reversals if market leaders stumble.
Market breadth, indicating the number of stocks contributing to a broader index’s rise, is typically seen as a positive sign by investors, suggesting gains are not reliant on just a few names.
Throughout 2023, market breadth remained narrow, with the S&P 500’s 24% gain primarily driven by the so-called “Magnificent Seven,” including Meta Platforms, Apple Inc., and Amazon. While breadth improved towards the year’s end, some metrics suggest a narrowing again in 2024. For instance, although the S&P 500 hit a record high with a 5.4% increase, the 10-day average of new highs on the NYSE and Nasdaq dropped to its lowest level since July.
Investors are now awaiting this week’s U.S. consumer price data to gauge if the recent economic strength is fueling inflationary pressures, which could prompt adjustments in rate cut expectations. The release of the Consumer Price Index (CPI) on Tuesday is anticipated, with the core CPI expected to come in at 3.8% year-over-year, slightly lower than December’s 3.9%. Despite December’s revised lower-than-expected consumer prices, the mixed data did not alter the market’s perception regarding the timing of potential Fed rate cuts.
In the foreign exchange market, the Dollar eased for the fourth consecutive week, while traders scaled back expectations for rate hikes by the Bank of Japan (BoJ) and rate cuts by the Federal Reserve. BoJ Governor Kazuo Ueda’s remarks suggested that accommodative monetary policies might continue even after ending the negative interest rate policy, expected as early as next month. Meanwhile, Japanese Finance Minister Shunichi Suzuki’s vigilance over FX movements did not significantly impact traders’ sentiments.
USD/JPY saw minimal change at 149.32, following an intraday high of 149.575, the strongest since November 27, resulting in a 0.64% gain for the week. The Dollar Index fell slightly to 104.04, while EUR/USD and GBP/USD both posted modest gains. Officials from the European Central Bank (ECB) and Bank of England (BoE) reiterated their stance against premature rate reductions, lending support to the respective currencies.
In the commodities market, crude oil prices rose approximately 6% week-on-week amid concerns about supply disruptions from the Middle East and tightening refined products markets. Brent crude futures settled at $82.19 a barrel, while West Texas Intermediate (WTI) crude futures settled at $76.84 a barrel.
The rise in oil prices was partly driven by ongoing tensions in the Middle East, including Israeli airstrikes on the Gaza Strip, which boosted prices by around 3%. Additionally, drone attacks on Russian oil refineries by Ukraine contributed to supply concerns, further supporting energy prices.
Gasoline futures increased by about 9% to $2.34 per gallon, and heating oil futures rose by 11% to $2.96 per gallon.
Meanwhile, gold prices slipped due to elevated Treasury yields, with traders awaiting U.S. inflation data for insights into the Federal Reserve’s interest rate policy. Spot gold fell to $2,022.86/oz, while COMEX gold futures settled at $2038.70/oz. Spot silver also experienced a slight decline to $22.53/oz.
In the cryptocurrency market, Bitcoin (BTC/USD) surged above $48,000 to $48,125, reaching its highest level in over two years, triggering a broader rally. Ethereum (ETH/USD) also rose to its highest level since January 18, reaching a high of $2540 on Sunday.