The XJO is expected to edge higher on open this morning despite a continued rally higher in the U.S which saw their market make another set of fresh highs. We could see their strength flow into our market by the time it opens, however we remain tentative as we continue to trade near the top of the range. U.S futures are flat this morning.
Our uncertainty may be due to the saturation of conflicting information. The U.S continues to make fresh highs, which would typically give us the permission to make some of our own. However, the Fed and RBA have warned against the overt optimism on the expediency of rate cuts that markets are clinging to. Furthermore, our earnings season is around the corner, which is expected to be worse than last year by two to seven per cent. This is likely leading to participants sitting on their hands and waiting for a clearer view.
US shares closed higher again overnight, with the major SP500 index approaching the milestone 5,000 point level. Shares rose after some continued strong earnings reporting and with commentary from Fed members that inflation is cooling and that data will determine the path of potential rate cuts – though there is no need to rush them. There was also very strong demand for US government 10-year bonds in a treasury bond auction, with strong bond demand helping to keep yields low. US shares continue to look heavily overbought after jumping around 22 percent since the start of November, especially when you consider that the rate cut timetable has been pushed out. However, being overbought doesn’t mean they will immediately fall, and they may require some catalyst to reverse trend.
Nine of the eleven sector groups of the SP500 closed higher overnight, with Technology, Discretionary, and Communications stocks the strongest performers. Real Estate and Staples stocks were the only ones to close lower on average.
Though the SP500 jumped further overnight, breaking into a fresh all-time high and approaching the milestone 5,000 point level. We will need to see if 5,000 acts as a resistance level, as the market sometimes stalls at these key marks. Should the index fall from here, the recent trough at 4,850 will need to break before further selling looks likely.
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