For much of last year, it was tech stocks that were posting multiple new record highs. These days, it’s been more traditional indices such as the Dow Jones index and the S&P 500 that are laying claim to such achievements.
US stock markets kicked off the new trading week on a feel-good note.
Investors continue to grow more optimistic about the economic outlook, thanks to President Joe Biden’s $1.9 trillion fiscal stimulus package and the continued dissemination of the Covid-19 vaccine. Despite several European countries pausing the rollout of the AstraZaneca vaccine, market participants were able to look past such concerns, with such setbacks hopefully temporary.
Dow flirts with 33,000
Respectively, the Dow and the S&P 500 reached their highest closing prices ever. The 125-year-old Dow Jones index was propelled higher on Monday by consumer discretionary stocks such as McDonald’s and Nike. The Dow has now notched 7 consecutive days of gains, its longest winning stretch since August.
The Wall Street 30 minis are now just shy of the psychologically-important 33,000 line. Although the momentum indicator still points to bullish sentiment, its 14-day relative strength index denotes overbought conditions have been reached. That suggests that a healthy and necessary pullback could be in order over the immediate term.
Still, the Dow appears well supported amidst the reflation trade, as the index continues being guided upwards by its 50-day simple moving average (SMA).
S&P 500 soars with 4,000 level in sight
The S&P 500 has recorded its 5th straight daily advance. This blue-chip index was boosted by aviation counters such as United Airlines and American Airlines, which climbed 8.26% and 7.7% respectively on Monday. Intriguingly, the top two-performing sectors on the S&P 500 on a year-to-date basis, namely financials and energy, were the only sectors to post declines yesterday.
As long as investors can remain confident that the world is taking further positive strides towards the post-pandemic era, the S&P 500 looks set to attain the 4,000 handle in the immediate future, with such a psychologically-important level just less than one percent away.
Nasdaq rebound to encounter technical and rotation resistance
Much has been made about the spike in Treasury yields roiling global equities, especially for the more expensive tech stocks. Hence, the fact that the 10-year yields climbed back down below the psychologically-important 1.60% has allowed some breathing space for this sector.
The Nasdaq 100 advanced 1.12% on Monday, pushed higher by some usual suspects:
The Nasdaq 100 minis look set to test their 50-day SMA, with stronger resistance set to arrive around the 13,350 region. A breach of the 13,350 mark would be a notable technical event, as it would mark a higher high from the resistance levels that proved resilient in late February through early March.
Still, tech stocks are expected to struggle under the weight of the ongoing rotation from more expensive tech stocks to other sectors that are now playing catch up.
What could push US stocks higher today?
Investors will be keeping a close eye on Tuesday’s key US economic data releases:
- retail sales (February)
- industrial production (February)
Wall Street is expecting a 0.5% contraction in February’s retail sales compared to the month prior, as the boost from January’s stimulus checks faded while freak winter storms wreaked havoc on spending patterns in several states. Still, with more stimulus checks being sent out to US households this week, investors are likely to hold on to their optimism and expect another positive bump to US retail sales for this month.
Meanwhile, last month’s industrial production is set to register a 0.3% month-on-month increase, which would be its lowest reading since September’s negative print, with February’s weather disruptions set to be taken into account.
Overall, better-than-expected data could spur more risk-taking appetite, potentially pushing US stock indices to fresh record highs ahead of Wednesday’s keenly-awaited Federal Reserve meeting.
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