S&P 500 expected to hit new heights

SINCE Oct 17, the S&P 500 has seen a 3 per cent pullback from its swing high level of 5,878, weighed by a concurrent 5 per cent rise in the US 10-year Treasury yield. This was due to resilient economic data, which dampened expectations for interest rate cuts from three to two for the remainder of 2024. Additional factors contributing to the risk-off sentiment included escalating tensions in the Middle East and uncertainty surrounding the US presidential election.

However, the index ended its short-term pullback and reached a new high on Nov 6 following the conclusion of the US presidential election. With Donald Trump emerging as the president-elect and the likelihood of a Republican sweep in Congress, market sentiment has turned optimistic towards the impact of his proposed policies. For example, Trump has proposed to extend all the individual income and estate tax cuts established by the Tax Cuts and Jobs Act (TCJA) of 2017 and lower the corporate tax rate to 15 per cent for certain companies. Previously, the TJCA permanently lowered the top corporate tax rate from 35 per cent to 21 per cent. Such measures that focus on reduced taxes and regulatory easing are expected to bolster corporate earnings and attract increased fund inflows which will benefit the US markets.

From a technical perspective, the S&P 500 has shown signs of recovery from its short-term pullback. The index recovered above the 5,765 support level following a breakdown on Oct 31 and subsequently broke past its previous all-time high of 5,878.

Moving forward, we are likely to see further bullish price movements for the S&P 500 as we head into the seasonally bullish November to December period, which typically sees gains during presidential election years. Historically, the index has averaged increases of 1.1 per cent and 1.5 per cent in November and December, respectively, in those years.

In summary, with the US presidential election yielding a decisive victory for the Republican party, it is likely investors are seeing the end of this period of short-term market uncertainty. A renewed risk-on market sentiment combined with bullish seasonality is likely to propel the S&P 500 to new heights above the 6,000 mark and beyond for the rest of 2024.

The writer is research analyst at Phillip Securities Research