S&P 500 trades near record highs despite Fed’s dovish stance

S&P 500 price is still trading near the record highs after yesterday’s pullback proved to be short-lived.

Fundamental analysis: Easy monetary stance to lift forgotten stocks, Jefferies say

The Federal Reserve plans to maintain an accommodative policy stance, an approach that should boost the long-neglected stocks, strategists at Jefferies wrote in a note.

The Fed has set a new inflation target in August, years after the lower-than-expected price rise. The bank’s framework pursues inflation that averages 2% over time and allows for periods of more than 2% inflation. The new central bank’s stance indicates that it plans to maintain the current easy monetary conditions well into the economic recovery.

The stock market has been touching new record highs over recent weeks on hopes that the government’s stimulus will boost economic activity. However, clients are currently concerned whether the increasing Treasury yields will impact stock investing, the Jefferies’ strategists argue.

The strategists believe the Fed will not tighten its policy stance for the foreseeable future. The current inflation target sets the bar pretty high to clear for upcoming rate hikes, and the ongoing rotation to value stocks is expected to boost neglected stocks from sectors such as energy, financials, and materials, the strategists added.

The unemployment rate is still far from the Fed’s objective, and the U.S. dollar remains expensive when compared to other currencies. Furthermore, junk bonds plummeted to record-low yields on January 9, and inflation estimates keep falling short of highs recorded at the same point in the financial crisis.

Technical analysis: Bulls want 4000

S&P 500 index is currently trading about 0.8% higher on the week thanks to the gains made on Monday. Last week, the US benchmark index soared 4.65% to record the best week Since November. 

S&P 500 daily chart (TradingView)

The price action now trades near the record highs. It is likely that the stock market bulls are likely to target a move towards $4000, where the next technical resistance is located. 

Summary

Strategists at investment banking company Jefferies believe that the Fed’s decision to maintain an accommodative policy stance will lift the unloved stocks from sectors like energy, financials, and materials.

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