S&P 500's Recent Rally: Analyzing the Underlying Factors

• S&P 500 Rally: The index has rallied significantly, over 10% off its low, influenced by changing interest rate expectations.

• Federal Reserve Policy: The shift from 'higher for longer' interest rates to expectations of rate cuts has been a critical market driver.

• Economic and Geopolitical Influences: Inflation data, Federal Reserve decisions, and geopolitical risks are key factors affecting the S&P 500's performance.

Understanding the S&P 500's Recent Movements

The S&P 500 has exhibited a noteworthy rally in recent times, primarily driven by changes in the Federal Reserve's interest rate policy. Earlier, the market was operating under the 'higher for longer' rate expectations. However, this view has recently shifted, leading to a belief that the Federal Reserve might begin to cut rates. This change in perspective has significantly influenced the stock market's performance, contributing to a rally that saw the index rise over 10% from its low point.

Economic Factors Influencing the S&P 500

The market's reaction to October's benign inflation data and the Federal Reserve's steady policy has been a major boost for Wall Street stocks. The slowdown in inflation and the Fed's pause in rate hikes have been received positively by investors. Current market anticipations suggest a more than 50% chance of a Federal Reserve rate cut by May 2023. However, predictions from Goldman Sachs's economic team indicate that the Fed might delay rate cuts until the fourth quarter of the next year.

The Role of Geopolitical and Corporate Factors

Geopolitical issues, such as the conflict between Israel and Hamas, are among the various risks affecting the market as it heads into 2024. Additionally, the U.S. corporate profit outlook is a significant factor, with expectations of earnings growth despite a weak first half of the year. The overall S&P 500 earnings growth for 2023 is estimated at 2.3%, with a projected increase of 11.2% in earnings for 2024.

References

1. https://lipperalpha.refinitiv.com/2023/11/sp-500-earnings-dashboard-23q3-november-24-2023/
2. https://seekingalpha.com/article/4588855-s-and-p-500-lesson-learned-week-starting-20th-november-technical-analysis-sp500