S&P 500 facing headwinds in final month of 2023
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THE US stock markets witnessed an impressive November, defying the typical sluggishness associated with the month. The Dow Jones Industrial Average (DJIA) soared by 8.8 per cent to reach a new year-high of 35,950.89. The Nasdaq also rose by 10.7 per cent and closed at 14,226.22, while the S&P 500 rose by 8.9 per cent to close at 4,567.80, marking their best performances since July 2022. However, as December unfolds, a sense of caution lingers.
Bullish scenario
The S&P 500 could extend its bullish momentum if it manages to breach the year-high of 4,607 set in July. This optimistic outlook is supported by expectations of a potential rate cut by the US Federal Reserve in early 2024 and the traditional “Santa Claus rally” that tends to boost market sentiment towards the end of the year.
Surpassing the 4,600 mark not only signifies overcoming psychological resistance but also marks a return above the year’s uptrend line, with a subsequent target of 4,725.
Bearish scenario
November’s stellar performance sets the stage for a potential correction, with investors contemplating profit-taking before the year concludes. The US inflation landscape adds complexity, influencing investor sentiment regarding the US Federal Reserve’s potential actions. Initial support is anticipated at the 20-day Simple Moving Average (SMA) level of 4,471, with a secondary support zone spanning from 4,355 to 4,408 (between the 50-day SMA and the 76.4 per cent Fibonacci level). Should the bearish sentiment intensify, a reversal of November’s gains could see the index decline back to the 4,280 area, in line with the current 200-day SMA level.
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In conclusion, the S&P 500 faces a delicate balance in its performance during the final month of 2023. The outcome hinges on breaking key resistance levels, the US Federal Reserve’s strategic moves, and the impact of potential inflationary pressures. Investors and traders should monitor these factors closely and adapt their strategies to navigate the final month of 2023.
The writer is senior investment specialist at Phillip Securities
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