Wall Street Indices Hit Record Highs on Powell’s Positive Remarks: U.S. stock indices reached new record highs,
driven by Federal Reserve Chairman Jerome Powell’s statements emphasizing the remarkable strength of the U.S. economy.
Meanwhile, the euro experienced significant volatility following the fall of the French government after a no-confidence vote in parliament.

Content

Strong Performance of Technology Stocks

Economic Activity Increases

A Risky Market Environment

A More Hazardous Market in the Long Term

Labor Market Under the Microscope

Continued Superiority of U.S. Stocks

Strong Performance of Technology Stocks Drives Indices to New Highs

Significant gains in major technology stocks pushed the S&P 500 Index to its 56th record close this year,
while the Nasdaq 100 rose by more than 1%. Nvidia was the key driver of the “Magnificent Seven” index,
which includes Meta, Amazon, Microsoft, Tesla, Nvidia, Alphabet, and Apple.
The index has gained nearly 65% year-to-date.
At the same time, Salesforce and Marvell Technology stocks continued to climb,
reinforcing expectations that both companies would benefit further from rapid growth in the artificial intelligence sector.
Speaking at the New York Times DealBook Conference,
Powell highlighted that Federal Reserve policymakers can afford to be cautious in adjusting interest rates toward a neutral level.
This level neither stimulates nor restrains the economy.

Economic Activity Increases

Krishna Guha of Evercore described Powell’s remarks as “slightly hawkish” but emphasized
that they continue to bolster market confidence in a December rate cut, which remains the baseline scenario.

The Beige Book, one of Powell’s favored economic indicators, showed a slight increase in economic activity in November,
accompanied by growing optimism among businesses regarding future demand.
In terms of indices, the S&P 500 rose 0.6%, the Nasdaq 100 gained 1.2%,
and the Dow Jones Industrial Average added 0.7%.
In the bond market, 10-year U.S. Treasury yields fell by 4 basis points to 4.18%.
In Europe, French bond futures held onto previous gains after
far-right leader Marine Le Pen joined a left-wing coalition to topple the government,
heightening political tensions that had been weighing on French assets for months.

A Risky Market Environment

Steve Sosnick of Interactive Brokers noted that the current market environment is “risky.”
Despite some investors taking precautionary measures like buying protection against a 10% correction in the S&P 500,
such a correction has not occurred in months.
Sosnick pointed out that the “cost of hedging” against a 10% correction has reached its highest level in three years.

George Smith of LPL Financial believes the current momentum in stocks may persist,
as December has historically been a positive month for markets.
Data since 1950 shows that 74% of the time, December delivers the best monthly returns.
However, Smith cautioned against potential short-term weaknesses due to escalating geopolitical threats and a slower-than-expected rate-cut cycle.

Meanwhile, J.P. Morgan Chase’s market analysis team, led by Andrew Tyler,
expressed tactical optimism through the year-end, citing favorable macroeconomic conditions,
earnings growth, and continued Federal Reserve support.
They added, “The current market momentum is worth leveraging, with minimal downside risks through mid-January.”

A More Hazardous Market in the Long Term

Doug Ramsey of Leuthold Group highlighted in a recent note that, paradoxically,
The substantial gains of 2024 have made the market appear riskier for long-term investors, though potentially safer for short-term speculators.

Leuthold’s Major Trend Index (MTI), which accounts for various metrics, remains in a “high neutral” state.
However, all its sub-indicators closed last week with strong bullish readings.
Short-term positions, chasing highs, and automated buying flows characterize a “go-with-the-flow” market environment,
though this could shift entering the new year.

Callum Thomas of Topdown Charts remarked, “This is not an ideal structure;
Investors and speculators have been lured into a perpetually rising market.”

Labor Market Under the Microscope

Cali Cox of Ritholtz Wealth Management observed that investors are placing
significant hopes on rising commodity prices but advised caution after November’s remarkable surge.
Cox emphasized that “the bar for success has risen considerably for an economy still grappling with volatility.”

He added, “Despite major shifts in expectations over the past two months,
there’s yet to be any sustained and clear momentum in economic data.
Projections remain critical, with the labor market continuing to be under scrutiny.”

Mark Hackett of Nationwide underscored that consumer resilience will be key to sustaining market gains.
He identified labor market health as one of the most reliable indicators for predicting consumer spending.

Hackett noted, “Markets are currently driven by a mix of technical and fundamental factors,”
adding that “the consistent upward momentum frustrates bearish traders,
creating a virtuous cycle where buying activity feeds further buying.”

He concluded, “While questions linger about sustainability through 2025 amid high valuations and ambitious forecasts,
This momentum is unlikely to waver in the near term.”

Continued Superiority of U.S. Stocks

Investor appetite for U.S. stocks has shown no signs of waning this year.
The S&P 500 has hit multiple record highs, climbing over 25%,
fueled by technological stock gains and a strong preference for American assets.
This momentum continued after Donald Trump’s election, raising hopes for tax cuts and deregulation.

BlackRock Investment Institute believes this trend could persist,
attributing it to the U.S.’s ability to leverage “mega forces” that drive corporate earnings.
Favorable growth projections, potential tax cuts, and reduced regulatory burdens support this.

The institute noted that some valuation metrics, such as price-to-earnings ratios and equity risk premiums,
appear strong relative to historical trends but may not tell the whole story.
They compared today’s index to the past to “comparing apples to oranges.”
Furthermore, valuations tend to matter more for long-term returns than short-term performance.

BII also highlighted the transformative potential of artificial intelligence,
which is expected to benefit U.S. stocks more than their global counterparts,
such as European equities. For this reason, BII recommends prioritizing investments in American stocks.

The note concluded, “While risks exist, the market demonstrates resilience.
Key factors that could alter this outlook include a rise in long-term bond yields or escalating trade protectionism.”

Wall Street Indices Hit Record Highs on Powell’s Positive Remarks

Wall Street Indices Hit Record Highs on Powell’s Positive Remarks

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