This week, the U.S. stock market welcomed the newly elected President with impressive gains, as the S&P 500 Index reached a fresh historical high, and futures touched the 6,000-point milestone. The market still seems to remember the "helicopter money" policies from Donald Trump's previous term, and whispers of an impending market bubble continue to circulate. Let’s take a closer look at the market from various perspectives.
Fundamental Analysis: The Past Week in Numbers
The U.S. stock indices showed strong returns over the past week (November 4–8). The Russell 2000, represented by the IWM ETF, led with an 8.74% gain, signaling optimism around small-cap stocks as investors poured into smaller companies, often considered high-growth opportunities during times of economic optimism. The QQQ, which tracks the tech-heavy Nasdaq-100, returned 5.48%, reflecting sustained interest in large-cap technology stocks. The SPY and DIA (BME:DIDA) ETFs, tracking the S&P 500 and Dow Jones, also showed solid returns of 5.20% and 5.37%, respectively, indicating broad market strength. This positive trend suggests a favorable environment for equities, likely driven by reduced fears of recession and robust corporate earnings.
Volatility indices declined sharply, marking a significant drop in market anxiety. The VIX, often seen as the S&P 500’s "fear gauge," fell by 31.72%, reflecting a more tranquil trading environment. Other volatility measures followed suit, with the VXN (Nasdaq volatility) dropping by 24.68%, the RVX (Russell 2000 volatility) by 22.85%, and the VXD (Dow Jones volatility) by 27.18%. This overall reduction in volatility points to lower perceived market risks, likely due to improving economic indicators or a stabilized macroeconomic outlook. A combination of rising index values and declining volatility portrays a more stable and optimistic sentiment across the market.
Market Gains in 2024: A Closer Look by Sector
Year-to-date, the S&P 500 Index has climbed by 24%, with specific sectors showing even stronger performance:
- Information Technology (IT): +34%
- Telecom-Media-Technology (TMT): +35%
- Financials: +32%
On the day following the presidential election results, the financial sector surged 6.2%, followed by consumer cyclical stocks (+3.9%) and energy (+3.5%). These gains suggest that investors anticipate a supportive environment for economic growth, especially within these key sectors.
Post-Election Market Outlook: Will the Euphoria Last?
Historically, the S&P 500 Index has averaged an additional 1% gain in the eight weeks following the past four presidential elections. A similar post-election bump may be in store this year.
Analysts from BCS believe that companies generating strong profits with a focus on domestic consumers and primarily localized supply chains are positioned to benefit. Recommended sectors include investment banking, industrials, semiconductors, and cybersecurity.
Bubble Watch: Are Stocks Overvalued?
BCS analysts suggest that the U.S. stock market remains fairly valued, with the S&P 500 close to BCS's 2024 target of 5,900 points. While concerns of a bubble persist, these valuations are in line with strong economic fundamentals and corporate earnings growth.
Technical Analysis: Is the Market Overheated?
- Trend Indicators: The S&P 500 maintains a bullish trajectory, staying above its 20-week moving average since November 2023. All primary trend indicators are intact, reflecting a strong upward momentum.
- Is the Market Overheated? The RSI on the weekly chart shows signs of bearish divergence, with the indicator nearing the overbought zone. Does this mean it's time to short the index? Not necessarily, and here’s why:
- Bullish Breakthrough: Surpassing previous highs is often a bullish signal, suggesting that the uptrend may persist in the medium term.
- Fibonacci Level: The daily chart reveals that the S&P 500 recently surpassed a critical Fibonacci level at 5,640 points, tested this support during a recent correction, and then rebounded above it. This opens the path toward the next target at 6,145 points.
The recent performance of major U.S. stock indices has shown impressive growth, reflecting a strong investor sentiment across both small-cap and large-cap stocks. The IWM (Russell 2000 Index) led with an 8.74% return, suggesting robust confidence in smaller companies during times of economic optimism, while the QQQ (Nasdaq-100) and SPY (S&P 500 ETF) followed closely with 5.48% and 5.20% gains, showing sustained interest in technology and broader markets alike. Sergey Savastiouk, Ph.D., CEO of Tickeron, underscores the importance of technical analysis for navigating these fluctuations, particularly when combined with Tickeron’s Financial Learning Models (FLMs). These models enable traders to interpret patterns in vast financial data sets using machine learning, equipping them to handle high-liquidity stocks with greater precision and confidence. As index values rise, volatility has notably declined: the VIX dropped 31.72%, with similar falls across other volatility measures, signaling reduced market anxiety and more stable trading conditions. With this combination of FLMs and AI-driven analysis, Tickeron empowers both novice and seasoned traders to adapt effectively to market shifts, minimizing risks and optimizing returns amid favorable corporate earnings and improved economic stability.
Summary
The technical outlook suggests that the bullish momentum could continue, despite signals of overheating. A potential correction may be triggered if the index falls below its last support at 5,700 points.