FXStreet reports that the S&P 500 Index has reached new all-time highs in the past few weeks driven by an impressive series of positive economic surprises. Economists at Morgan Stanley remain bullish overall and still expect a powerful V-shaped economic recovery next year. However, the benchmark index of the broader US market has already priced in a great deal of optimism about the year to come and some positive catalysts may have run their course.

“Corporate earnings growth could average 25% in 2021, according to a consensus estimate compiled by FactSet. Positive earnings revisions are now running at their swiftest pace in more than 20 years. Forward price/earnings multiples are at extreme levels relative to the past 20 years (22 vs. 15 historically for the S&P 500). This is despite the fact that inflation expectations and long-term interest rates are rising. Those conditions typically lead to lower stock multiples, which we expect.”

“The Fed has committed to keeping its key short-term interest rate near zero through December 2023 and has already deployed every means possible to stimulate the economy, leaving it with only modest short-term tools. Many investors expect another round of federal government stimulus, to the tune of $900 billion, which seems the largest package that a divided Congress would likely pass.”

“It will likely take new catalysts for stocks to rise further from here. A Democratic sweep in Georgia Senate races that could lead to an expansionary Biden agenda around infrastructure could be one outcome that isn’t yet priced into markets. But given current polling, the probability of that happening is only 20%.”

U.S. stock-index futures traded rose on Tuesday, as U.S. lawmakers released a new proposal of a coronavirus aid package and Covid-19 vaccines started to roll out across the country.

Global Stocks:

(company / ticker / price / change ($/%) / volume)

Deere (DE) initiated with an Outperform at Oppenheimer; target $296

Chevron (CVX) downgraded to Equal Weight from Overweight at Wells Fargo; target $105

FXStreet reports that the Credit Suisse analysts team notes that the S&P 500 Index has now closed (just) below its 13-day exponential average and as daily MACD momentum has crossed lower, the risk for a corrective setback looks to be increasing. 

“The S&P 500 rally continues to lose momentum with the market unable to hold its early gains from yesterday, closing (just) below its 13-day exponential average, with daily MACD now having also crossed lower.”

“Below support at 3636/33 would see this pressure increase further with support then seen next at 3625/22 ahead of the late November low and price gap at 3594/78, with fresh buyers expected here. Failure to hold here though would be seen exposing the 38.2% retracement of the October/December rally at 3530.”