Futures for the S&P 500 Rise After the Key Index Finished at a Record High

U.S. equities showed gains on Monday, extending the momentum from a record-setting close as the fourth-quarter earnings season gets underway.

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The Dow Jones Industrial Average (DJIA) increased by 214 points, or 0.6%, reaching 38,078. Simultaneously, the S&P 500 (SPX) rose by 17 points, or 0.4%, reaching 4,857. The Nasdaq Composite (COMP) also advanced by 59 points, or 0.4%, reaching 15,364. On Friday, the S&P 500 achieved its first record high in over two years, while the Dow marked its second record close for the year.

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Despite the recent record-setting performance of the S&P 500, some investors remain skeptical about the sustainability of the rally, citing concerns about stretched valuations. Lisa Shallett, Chief Investment Officer at Morgan Stanley Wealth Management, expressed caution, noting that with forward multiples already at historic peaks and ambitious earnings forecasts for the next 12 months, equity market gains may encounter headwinds in 2024. Shallett highlighted the potential for a stall in market gains as better earnings are met with lower valuation multiples typical of a midcycle or soft-landing environment.

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The current forecast for 2023 S&P 500 Index earnings is in the range of $219-$221, with a consensus estimate for 2024 ranging from $242-$244. Shallett pointed out that for the index to surpass the 5,000 mark, investors need to confidently price in upside potential to $250 by midyear, a challenge given the expected uncertainty.

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Matthew Tuttle, CEO and Chief Investment Officer at Tuttle Capital Management, highlighted that the Magnificent Seven tech giants have entered overbought conditions. He suggested that the market might face a period of consolidation until the disagreement between the market and the Federal Reserve regarding rate cuts is resolved.

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The upcoming earnings season is set to feature results from prominent companies such as IBM, Netflix, and Tesla. Analysts are closely monitoring corporate profit margins, which reached historic highs during the pandemic due to price increases. In 2024, cost cuts could play a role in helping these margins resume their ascent.

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The Conference Board's leading economic index for the U.S. economy experienced a 21st consecutive decline in December. While the index decreased by 0.1%, it was smaller than the 0.3% drop forecasted by economists. Looking ahead, key economic indicators and rate decisions from the European Central Bank and the Bank of Japan are expected later in the week.

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Chinese equities faced challenges as the Hang Seng dropped 2%, while European equity markets recorded advances. The broader sentiment in the market remains influenced by various factors, including earnings reports, economic data releases, and global central bank actions.

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