Wall Street’s Winter Euphoria: Impact on Nasdaq, Dow Jones, and S&P 500

Wall Street is putting in efforts to end 2023 on a high. Key indices led the surge, including Nasdaq, Dow Jones Industrial Average, and S&P 500 — all ascending by a minimum of 1.3% on December 22, 2022. These levels are closing in on the all-time-high levels associated with these indices.

Here are the levels that surfaced on December 22:

Dow Jones rose 0.22% week-on-week

S&P gained 0.75%, week-on-week

Nasdaq Compsite surtged 1.21, week-on-week

“Federal Reserve’s dovish monetary stance is one of the primary reasons why there was a visible broader uplift,” Trading.biz analyst Rahul Nambiampurath mentioned. What followed were strengthened economic projections and a positive outlook concerning inflation and interest rates.

The first cog in this euphoric wheel is the steady interest rate range of 5.25% to 5.50%. Adding to this is the expectation of a dovish future, with Feds envisioning at least a 75-point rate in 2024. This move, if realized, can spur new investment inflows and economic growth. The market anticipated such an accommodative stance from the Federal Reserve, with the interest-rate influenced sectors like real estate showing rallying signs as early as December 13, 2023, surging by 4.11% in a single trading period.

Here are the key players that peaked the most on a day-on-day basis:

Redfin (RDFN) by 18.2%

Toll Brothers (TOL) by 7.5%

Meritage Homes (MTH) by 8.4%

Following the positive announcement from the Federal Reserve, all the major indices sharply rose in December 2022. Dow surged by almost 500 points, breaching past the 37,000 mark. Even S&P and Nasdaq attracted significant gains, projecting buoyed investor optimism.

Also, a closer analysis of the S&P 500 Real Estate sector reveals interesting insights. The sector-specific rally was brought about post breaching a clear Cup-and-Handle pattern, as revealed by the chart. The price surge has also been validated by the Relative Strength Index (RSI) making higher highs. Yet, some correction could be expected as against the higher lows made by the price; the RSI is forming lower lows, hinting at a hidden bearish divergence for the path ahead.

Without strong trading volumes, a drop of even 10% might look plausible in specific sectors. That could potentially bring in those value-buying calls.

Besides Real Estate, sectors like Utilities and Financials have seen surges of 3% to 10% compared to last month’s levels. Trading.Biz analyst Rahul also stresses the spikes following the Fed economic projections to be anti-inflation. With a crucial inflation-determining metric — Personal Consumption Expenditures — dropping to 2.4% in 2024, rate-cut optimism and market confidence seem to be returning.

Analyst views align with market participants’ views, with almost 60% expected rate cuts by March 2024. Regardless of the optimism, it is crucial to track the index-specific surges in relation to the Volatility Index and technical elements like pullbacks, support and resistance levels, trading volumes, and more — to zero in on targeted buying opportunities.