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Stocks set for breather after four-week rally

Employees work at the Tokyo Stock Exchange in Tokyo, Japan, on Dec. 28, 2018.   (Kiyoshi Ota/Bloomberg)
By Rita Nazareth Bloomberg

Stocks looked poised to pull back after hitting overbought levels in a rally that sent the market toward one of its biggest meltups over the last 100 years.

S&P 500 contracts edged lower after notching a four-week rally. Wall Street’s “fear gauge” – the VIX – was set to halt a slide that drove the equity-volatility gauge to its lowest since 2020.

Cryptocurrency-linked shares dropped as Bitcoin slid. Traders will keep a close eye on retailers as Cyber Monday kicked off.

Gold topped $2,000 as the dollar continued to weaken. Bond yields fell.

“The technical backdrop in the stock market right now is critically important,” said Matt Maley, chief market strategist at Miller Tabak + Co.

“This does not mean that we’re about to see an important top in the stock market. It could just mean that we’ll see a mild pullback or even a ‘sideways’ correction at some point in the next week or two to work off this overbought condition.”

Predictions of a record high for the S&P 500 next year are intensifying, with Deutsche Bank Group AG strategists led by Binky Chadha expecting the benchmark to hit 5,100 by the end of 2024 – implying gains of about 12% from current levels – against a backdrop of cooling inflation and a rebound in corporate earnings.

“Despite above-trend growth, core inflation has fallen,” the strategists wrote in a note.

“Continued declines would return inflation to its pre-pandemic range without requiring slower growth.” Moreover, given that any recession “is widely anticipated and expected to be mild and short, we see only a modest short-lived selloff.”

In earnings, Crowdstrike Holdings Inc. will underscore how businesses are prioritizing cybersecurity after recent high-profile corporate hacks, while Salesforce Inc. and Dell Technologies Inc. are expected to post slower sales growth when they report this week, as overall corporate expenditure tightens.

The selloff that’s ripped through green stocks looks set to continue into 2024, bringing a fourth consecutive year of losses, according to Bloomberg’s latest Markets Live Pulse survey.

The negative sentiment appears poised to engulf a wider array of green asset classes, with Tesla Inc. seen at risk of losing its place among the 10 biggest stocks in the S&P 500.

Almost two-thirds of the 620 MLIV Pulse respondents said they plan to stay away from the electric-vehicle sector, and 57% expect the iShares Global Clean Energy exchange-traded fund – which is down about 30% this year – to extend its slide in 2024.