S&P500 Forecast: Stocks rise building on last week's gains

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Fiona Cincotta
By :  ,  Senior Market Analyst

US futures

Dow futures +0.07% at 34084

S&P futures +0.16% at 4364

Nasdaq futures +0.18% at 15122

In Europe

FTSE +0.27% at 7425

Dax -0.28% at 15146

  • Fed rate cut hopes help lift stocks
  • The market sees the first rate cut mid-next year
  • Fed speakers are in focus
  • Oil rises after falling almost 6% last week

Stocks rise, adding to last week’s impressive rally

U.S. stocks are pointing to a positive start after strong gains in the previous week, boosted by rate hike cut optimism and ahead of Federal Reserve speakers later today.

Wall Street indices posted their best weekly performance in almost a year last week, lifted by falling US treasury yields and a weaker-than-expected non-farm payroll report, which fueled hopes that the Federal Reserve could be done with hiking interest rates and may start to cut rates by mid next year.

The US payroll report was a pivotal point for the market. It was weak enough to support the Fed’s perceived average tilt without sounding alarm bells over the health of the US economy.

The market is currently pricing in a 90% probability that the Fed will keep interest rates on hold in December and is pricing in an 86% probability that the first rate cut could come as soon as June.

Yields on the benchmark 10-year treasury yield fell to a five-week low on Friday and are just edging up slightly on Monday to 4.59%.

Attention will now turn to Federal Reserve speakers, including board governor Lisa Cook, New York Fed president John Williams, and Dallas Fed president Lorie Logan, for further clues on the outlook for rates.

Looking out across the week, the US economic calendar is relatively quiet with just jobless claims on Thursday and University of Michigan consumer sentiment on Friday.

Earnings will continue to be in focus.

Corporate news

Tesla is rising after reports that the EV maker plans to build a €25,000 car at its Berlin factory to attract the mass market.

BioNTech is rising after the drug maker cut its 2023 target due to low demand for COVID-19 vaccines and said that the write-down was less than initially expected.

Berkshire Hathaway is set to rise 0.4% after the company posted a record cash pile of $157 billion in Q3 as Warren Buffett found fewer opportunities for investment amid a challenging environment.

S&P 500 forecast – technical analysis.

The S&P500 has extended its recovery from 4100, rising above the 200 sma and 50 sma, which combined with the RSI over 50 keeps buyers hopeful of further upside. Buyers will look for a rise above 4400 the October high, ahead of 4500, round number. Failure to close above the 50 sma at 4350 could see the price head lower to test the 200 sma at 4260. A break below here brings 4200 the October 5 low into focus.


FX markets –USD falls, EUR rises

The USD is falling, extending losses from last week, and has dropped to a six-week low after a weak non-farm payroll data supported the narrative that the Federal Reserve is at the end of its hiking cycle. The market is currently pricing in an 86% probability that the Fed's first rate cut will come as soon as June next year.

EUR/USD is rising owing to weaker U.S. dollar and despite euro zone data fueling recession fears for the region. The composite PMI report confirmed that business activity contracted at a faster pace in October to 46.5 down from 47.2 in September. The data suggests that the eurozone economy, which contracted 0.1% in Q3 could fall into recession in the final quarter of the year.

GBP/USD is rising supported by bets that the Bank of England will keep interest rates higher for longer. BOE chief economist Hugh Pill is due to speak later today, which could shed more light on the inflation and interest rate outlook. Construction PMI data showed an ongoing contraction in the sector.

EUR/USD +0.91% at 1.0740

GBP/USD +0.17% at 1.24

Oil rises after steep losses last week

Oil prices are rebounding after Saudi Arabia and Russia confirmed their commitment to voluntary supply cuts until the end of the year.

Saudi Arabia reiterated its commitment to its additional voluntary production cuts of 1 million barrels per day until the end of December, and Russia also announced it would continue with its 300,000 barrel per day reduction in output until the end of the year.

WTI and Brent are recovering some lost ground after dropping almost 6% last week as concerns that the Middle East conflict will impact oil eased.

On Tuesday, attention will be on economic data from China, which comes after disappointing manufacturing PMIs last week.  Weakness in Chinese data kit cap gains in oil prices.

WTI crude trades +1.25% at $81.42

Brent trades +1.3% at $85.80

Looking ahead

17:00 BoE Huw Pill speaks

Related tags: US Open Oil USD SPX 500

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