S&P 500 jumps above $4,000 in a relief rally

Today’s sentiment has been more optimistic than the last week’s amid the lack of negative news, pushing the stock indices higher.

US data deteriorated sharply

Despite an unexpectedly substantial increase in durable goods orders (+5.6% MoM) in December, economists anticipated a decline (-4.0% month over month) in January. The real result was a 4.5% monthly decline, the most significant downturn since April 2020. Core Durable Goods (excluding Transportation) were up 0.7% monthly against the 0.1% expected, which was the largest increase since March 2022 (although the yearly core durable goods are up only 1.6%).

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In addition, the value of core capital goods orders, a proxy for investment in equipment excluding aircraft and military gear, rose 0.8% in January following a downwardly revised 0.3% decrease in December, according to data released by the Commerce Department on Monday.

In the past three weeks, the S&P 500 has declined due to expectations that rising pricing pressures may drive further (and larger) rate rises from the US central bank. In addition, an unanticipated increase in the personal consumption expenditures price index bolstered expectations for tightening monetary policy. Still, robust income and spending growth statistics alleviated worries of an impending recession.

Some analysts confirmed their bearish view

On the other hand, Mike Wilson of Morgan Stanley remains bearish: Wilson predicted that March would bring deeper bear market headwinds for equities. New earnings downgrades will impact markets, with the S&P 500 predicted to fall as much as 24 % to 3,000 points by Wilson. Torsten Slok, the chief economist at Apollo Global Management, concurred with Wilson’s assessment that investors who enter this market risk getting into a “bull trap.”

“A generation of investors has since 2008 been taught that they should buy on dips, but today is different because of high inflation, and credit markets and equity markets are underestimating the Fed’s commitment to getting inflation down to 2%,” Slok wrote in a note.

So far, the S&P 500 index has defended the medium-term uptrend line and the 200-day moving average, which are the key support levels for the index. If the index falls below both of them ($3,950), the trend could quickly change to bearish, targeting the $3,800 level in that scenario. On the upside, this week’s resistance is expected at $4,100 again.