S&P 500 ducks into red as Nasdaq and Dow Jones make gains

US stocks experienced a pause on Monday, following a record-setting week.

At the close, the Dow Jones had slipped 0.2% to 39,069 and the S&P 500 had lost 0.4% at 5,070. The Nasdaq also dipped 0.1% to 15,976 after a strong performance in the tech sector.

Investors are awaiting new inflation data, particularly the PCE index reading on Thursday, which will influence discussions on potential rate adjustments by the Federal Reserve amid concerns over rising inflation.

This week's data, including consumer and manufacturing indicators, will provide further insights into the health of the US economy and could impact the current bullish sentiment in the stock market.

The S&P 500 ducked into the red come Monday midday, while the Nasdaq and Dow Jones enjoyed modest gains.

A one-point loss had the S&P 500 down at 5,087 points. The Nasdaq Composite and Dow Jones added 34 and 24 points to reach 16,030 and 39,155 points, respectively. 

Following a positive start to the trading week by the trio, IG analyst Chris Beauchamp noted that stocks could struggle with the bulk of the earnings season now behind.

This week’s release of consumer spending data on Thursday could add further pressure, he added, given the markets’ hopes for rate cuts by the Federal Reserve sooner rather than later.​

That said, Beauchamp acknowledged that stocks had been resilient so far on diminishing hopes of impending base rate reductions, given recent rallies by the likes of the S&P 500.

“The resilience of equities in the face of diminishing expectations of Fed rate cuts in the first half of the year, and maybe even in the second half, shows that there is a lot more to the rally than just hopes of looser monetary policy,” he said.

Among equities themselves, Palo Alto Networks Inc (NYSE:PANW, ETR:5AP) led the S&P 500 and Nasdaq’s big risers on Monday, with gains of 8.5% coming after losses last week on the back of a downgrade to revenue guidance by the cybersecurity firm.

Micron Technology Inc (NASDAQ:MU)'s 6% jump earned it a place among the two indexes’ risers meanwhile, following news that the firm had begun volume production of semiconductors for use in artificial intelligence chips.

Domino's Pizza Inc (NYSE:DPZ) enjoyed a 7% rise after reporting better-than-expected earnings for the fourth quarter.

And elsewhere, Salesforce Inc (NYSE:CRM, ETR:FOO) saw the most impressive gains among Dow Jones constituents, rising over 3% ahead of its earnings on Wednesday.

The Dow Jones led the way with a 74-point gain as the markets opened on Monday morning. 

The S&P 500 and Nasdaq also enjoyed positive starts meanwhile, climbing 3 and 18 points to reach 5,092 and 16,015 respectively.

This follows what has been an astonishing rally, "almost unprecedented", according to strategists at Deutsche Bank, who said the rally has some vulnerabilities due to relying on a narrow number of stocks.

Since starting in late October, the rally last week saw the S&P 500 post its best performance in six weeks, reaching an all-time high, while other indices hit their own records, including Europe's STOXX 600 and Japan's Nikkei.

"Elsewhere, credit spreads are around their tightest over the last two years, and broader measures of financial conditions have continued to become more accommodative. But this rally is now incredibly unusual by historical standards," said macro strategist Henry Allen.

To put it in some perspective, he shared some statistics.

"The S&P 500 has now advanced for 15 of the last 17 weeks – that’s only happened one other time in the last 50 years, back in 1989," he noted. 

And if the S&P 500 is positive again this week, that would make 16 out of 18 positive weeks.

"The last time that happened was in 1971, shortly before the end of the Bretton Woods system. Achieving 16 out of 18 positive weeks would also be a joint record since the index’s creation," Allen said.

In 15 of the past 17 weeks, the S&P 500 posted a gain of at least 0.2% over the week, and in its entire history has never managed to achieve that in 16 out of 18 weeks, he added.

"So if there’s a gain of at least 0.2% this week, that would be the first time the S&P 500 has managed that in history."

The current equity rally is "very narrow" by historical standards, he said, continuing the theme from 2023 with the Magnificant 7 accounting for such a large proportion of the gains.

For instance in 2023, the S&P 500 rose +24.2%, whereas the equal-weighted S&P 500, which gives an equal weighting to all 500 constituent stocks' shares, was only up +11.6%.

That marked the first time since 1998 that the S&P 500 outpaced its equal-weighted version by more than 10 percentage points, back during the dot com bubble, the strategist said.

Once again in 2024, the S&P 500 is up +6.7%, but the equal-weighted index is only up +2.5%.

Inflation persistence "could be an issue for markets", Allen added, as it would mean central banks have to keep rates higher for longer.

He pointed to when the US CPI report for January saw an upside surprise, which led to the S&P 500 falling 1.37% that day.

"So this is a theme that markets are still vulnerable to."

Wall Street stocks are projected to start the week in a cautious mood after new all-time highs were set last week, with today bringing new home sales data.

The S&P 500, Dow Jones and Nasdaq are all trading down less than 0.1%. Last week the S&P closed at 5,088.8, the Dow at 39,131.5 and Nasdaq at 15,996.8.

It’s a busy week ahead for economic data, with possibly the main even being the Federal Reserve's favoured inflation measure, core PCE prices on Thursday, which is expected to reach the highest in a year.

"It has been a quiet start to the week as investors continue to come down from the ‘sugar rush’ supplied by NVIDIA’s earnings report after Wednesday’s close," said market analyst David Morrison at Trade Nation.

He said there’s "little sign" of a catalyst which could overturn that sentiment, but if core PCE were to follow the recent CPI numbers in ticking higher "then it may trigger some profit-taking".

Today's new home sales and pending home sales on Thursday will "focus on whether higher mortgage rates and bad weather in January has had a big impact", said Deutsche Bank's Jim Reid.

Other data due includes durable goods and consumer confidence tomorrow, the second reading of GDP on Wednesday, the personal income and spending data on Thursday, and as we begin the month of March on Friday it will be ISM manufacturing data and car sales.

"Friday is also the day that we could see a partial government shutdown if Congress fails to pass the 2024 budget that has already been agreed to," said Reid.

"Our economists think that it's possible we get a short-term continuing resolution for an extra week which would push it past the 'Super Tuesday' primaries on the 5th and coincide with the deadline for the second tranche annual funding bills."

Over the weekend, President Joe Biden issued new sanctions against Russia, saying it was the largest package of sanctions since the invasion of Ukraine two years ago on Saturday.

Ahead of the presidential election in November, Donald Trump took another expected primaries win in the race to become the Republican nominee. Tomorrow the primaries continue to Michigan, a week ahead of the so-called Super Tuesday where primary elections will be held in fourteen states and one caucasus in one day.