Jan 16, 2024

Last week, a rebound in US stock prices had the S&P 500 index aiming at all-time highs. 

SP500-–-Weekly-Chart

SP500 – Weekly Chart 

The SP500 closed around 4,782, with an all-time high of approximately 4,820. The market will try to get there in January. 

US stock markets were closed for a public holiday on Monday and will reopen on Tuesday. Stocks in the S&P settled at around a 2-year high as the broader market was boosted by a supportive US Dec PPI report, raising expectations for Federal Reserve rate cuts.   

The US economy is also set for an unexpected fiscal boost if lawmakers back a proposed deal for $70 billion worth of tax breaks. 

Congress is locked in talks over renewing expired business tax breaks and boosting the child tax credit, evenly split between both. The proposal would need to pass through a Congress that is deeply divided over the nation’s fiscal situation, with some Republican lawmakers pushing for deep spending cuts to avert another government shutdown on Jan. 19 and Feb. 2, when temporary funding expires. 

After another messy debt ceiling negotiation, the US saw its credit rating downgraded by the rating agencies in 2023. Nancy Vanden Houten, an economist at Oxford Economics, said the overall size of the tax breaks wouldn’t be enough to change her view that the Fed will cut rates in May. 

“The impact on the broader economy would be relatively small, and probably not enough to change our forecast for inflation and the Fed,” she said. 

For now, markets are fixated on Fed tax cuts, and that could push the S&P 500 higher this week with all-time highs in view. The Nasdaq and the Dow have already seen new highs. That is likely due to foreign investment in the prized Dow 20 and tech-heavy Nasdaq.

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