NASDAQ Composite Index (NASD.I) & iShares Real Estate ETF (IYR)

Equity markets, which had levelled off early in the week as investors awaited the results of yesterday’s Fed meeting, took off again yesterday afternoon on the Fed decision and forecasts. While the Fed holding rates was as expected, clearer comments suggesting that the US central bank is either done or nearly done raising rates unless something happens, and a forecast from FOMC members calling for potentially 3 rate cuts next year, up from 2 in September and back to the June forecast, was taken as shift to neutral-dovish from neutral-hawkish by traders. Equity market breadth continues to improve with the small-cap Russell 2000 soaring over 3.0% Wednesday, while the large cap Dow Industrials, S&P 500 and NASDAQ all gained around a more moderate 1.0%. Most markets around the world have climbed 2-4% over the past week so geographic breadth has been significant.

Bullish action has been widely spread out across sectors as well. All eleven major industry groups rallied between 2.0% and 4.1% yesterday and all eleven groups are up over the last week too. Tomorrow is Quadruple Witching Day when many futures and options contracts expire which means we may see some volatility as traders adjust positions. With the holidays approaching, we may see corporate news start to slow down next week and there are only a few notable companies reporting earnings such as Nike and FedEx. Fed Chair Powell hinted that a soft landing scenario continues to play out. Heading toward the holidays, there are still a number of economic reports on the way which may give investors more clarity on the state of the economy including US retail sales today, Flash PMI reports from around the world tomorrow, and a number of US housing market indicators next week. For Canada, inflation reports next week plus monthly GDP are the main events before things go quiet for the holidays. In this edition of Equity Leaders Weekly, we look at a big breakout by the NASDAQ and a resurgence in interest in the real estate sector.

Although by virtue of the fact that they fell less in 2022, some US indices like the Dow Jones Industrial Average (DJI.I) and the S&P 100 Index (OEX.I) are closer to reaching new all-time highs, the NASDAQ Composite has been driving the bus in the year’s market recovery with a 40.7% year to date gain, compared with an 11.9% gain for the Dow.NASD.I started the year with a bullish bear trap reversal where a breakdown to a new low on trend by one row was quickly reversed. Since then, the index has been steadily climbing, establishing an uptrend of higher lows and staging bullish pattern breakouts including three Double Tops and two Bullish Catapults. Corrections have been moderate to date, not even registering a high pole warning along the way.This month, NASD.I has launched into a new upleg and with a close above 14,690, it has reached its highest level since February of 2022. Next potential upside resistance tests appear at a previous column high near 15,590, the previous all-time peak near 16,220, and then 16,875 which is based on a vertical count. Initial support appears near 13,570 based on a 3-box reversal.

The dovish shift by the Fed has sparked a number of trend reversals over the last number of weeks in interest rate sensitive markets including treasury yields, bonds and the US Dollar. In equity markets, it has helped to drive a resurgence in investor interest in interest rate sensitive groups which had underperformed through the rising interest rate environment that had dominated much of the year.In equity markets, some of the prime beneficiaries of what looks like an end to rate hikes for now include Financials (banks, brokerages, asset managers, credit card companies), Utilities and Real Estate.The US real estate sector, represented here by the iShares Real Estate ETF (IYR) was under distribution for nearly two years. While the majority of the losses came in 2022, the final downdraft which took the ETF to a new low came in and October-November selloff.Since finally bottoming out last month, IYR has been under renewed accumulation bouncing back strongly, staging two bullish Double Top breakouts, the second of which was a Bullish Catapult. Into December, IYR has broken out of its previous downtrend and confirmed the start of a new uptrend by clearing its August 2023 high to trade at its highest level since February.Previous column highs suggest potential upside resistance may appear near $93.55, or $99.35. Initial support appears near $85.55 based on a 3-box reversal.