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Key tests ahead amid strong belief in lower interest rates

In the week ahead, markets face a significant test, with a crucial inflation reading and the second estimate of US 4th quarter economic growth challenging the prevailing confidence in lower interest rates. Despite Wall Street’s obsession with AI advancements and the soaring fortunes of companies like Nvidia, the looming prospect of rate cuts from the Fed remains a potent factor, ready to disrupt the market if data disappoints.

While Friday saw Wall Street eke out modest gains, hitting new records in the process, the underlying concerns about interest rates persist. The S&P 500 inched up by 0.03% to close at 5,088.80, breaching the 5,100 mark for the first time, while the Dow Jones Industrial Average climbed 0.16% to reach an all-time high of 39,131.53. However, the Nasdaq slipped 0.28%, despite hitting a fresh 52-week high earlier in the day.

Although Wall Street celebrated another successful week, similar bullish trends were observed in weak European markets and the Japanese market, which finally surpassed its previous peak after nearly four decades. Japanese shares surged by 1.6%, marking a significant milestone after years of recovery from a substantial downturn.

In contrast, the Australian market saw a slight gain on Friday, barely offsetting losses earlier in the week. The futures market closed with minimal movement, reflecting stability in the Aussie dollar, which ended the week with a marginal gain against the greenback.

Amidst these market movements, Nvidia’s performance stood out, briefly crossing the $2 trillion mark in market value. However, the stock’s momentum faltered, ending the day with a modest gain following Thursday’s significant surge. Despite this, Nvidia’s market value settled at $1.97 trillion, positioning it as one of the most valuable companies, trailing only behind tech giants like Apple and Microsoft.

Investors remain cautiously optimistic, navigating through uncertainties surrounding interest rates and market fluctuations, while closely monitoring key economic indicators in the week ahead.