US stocks struggle to advance in early 2024, as investors digest the start of corporate earnings reports initiated by Wall Street banks and keep an eye on inflation ahead of a closely watched retail sales report.
“Stock and bond markets are telling time,” Yardeni Research said in a Jan. 11 note. “They may continue to do so through the first half of this year, but the stock market should resume its advance during the second half,” the company wrote.
The S&P 500 is trading near its highest closing peak reached in more than two years, briefly rising above it on Thursday as it flirts with a new record close, but the index ended the session slightly lower, and its gains eased. Last week left it barely in the green for January. .
The other two major US stock indices, the Dow Jones Industrial Average (DJIA) and the Nasdaq Composite COMP,
It ended Friday with modest year-to-date declines despite weekly gains. Investors are now looking to the December US retail sales report, due on Wednesday, to get a window into the strength of consumers to continue fueling the economy.
“We know that the consumer, largely because of the job market, has helped keep our economy going reasonably well,” Bob Doll, chief investment officer at Crossmark Global Investments, said in a phone interview. “The question will be: Can they still spend the money?”
Dole said he expects consumer spending in December to slow slightly from November, as people no longer have the same pile of excessive savings that built up during the pandemic.
He expects the S&P 500 to end 2024 at 4,350, which would represent a 9% decline from its closing level on Friday, saying he expects corporate earnings growth to be below consensus estimates.
The S&P 500 SPX rose on Friday to close at 4,783.83 — its highest level since Jan. 4, 2022 and 0.3% below its record close of 4,796.56 on Jan. 3, 2022, according to Dow Jones Market Data.
“I think it's absolutely valuable,” Doll said. The index's current price-to-earnings ratio of 20 “may not be sustainable.”
As for the start of earnings season, JPMorgan Chase & Co. shares rose. JPM,
bank of America Corp BAC,
Wells Fargo & Co. WFC,
They all ended lower on Friday after fourth-quarter results were announced.
Goldman Sachs Group Inc. GS,
and Morgan Stanley MS,
Each will release its quarterly earnings on Tuesday, after a three-day weekend honoring the late civil rights leader Martin Luther King Jr.
Meanwhile, UnitedHealth Group Inc. UNH,
It was the worst-performing stock in the Dow Jones Industrial Average on Friday after reporting fourth-quarter earnings, FactSet data show.
“Big question”
“The market is looking for a triple bottom line,” including the US avoiding “even a mild recession,” the Fed making about six rate cuts by the end of December, and inflation falling faster to the Fed’s 2% target than it has. It was expected. Sandy Bragar, Aspiriant's chief customer officer, said in a phone interview.
“Those are three very sublime things,” she said. “All three of these things going on are a big ask.”
Last week, investors saw two December inflation readings, including consumer prices and wholesale prices. Thursday's CPI data rose slightly larger than Wall Street expected and accelerated to an annual rate of 3.4%, while Friday's report on wholesale inflation measured by the Producer Price Index was weaker than expected. .
The CPI reading was “hotter” than expected, “but beneath the surface it shows the Fed is very close to meeting” its 2% inflation target, according to a DataTrek research note emailed Thursday. The federal funds futures market took the inflation data “as a signal that the Fed will be more likely to cut interest rates this year,” Nicholas Colas, co-founder of DataTrek, said in the note.
But Dole worries that “inflation may not come down as quickly as people hope.” It's likely to be “a little more difficult than the market thinks,” he said.
On the other hand, the US unemployment rate has remained historically low, even with the Federal Reserve's efforts to slow the economy through restrictively high interest rates in order to reduce inflation.
Against the backdrop of a resilient labor market, real wage growth “provided a boost to consumers' wallets,” supported in part by lower petrol prices, David Doyle, head of economics at Macquarie Group, said in a phone interview.
But he is concerned that the US could see an “unwanted spike” in the unemployment rate this year, potentially closer to 5%, from 3.7% in December. “Our base case is to have a year of flat real GDP growth in 2024, but the economic growth environment is certainly softer,” Doyle said.
Doyle said such a rise in the unemployment rate helps explain much of the 225 basis point interest rate cuts he expects in 2024, starting in June. This means nine interest rate cuts.
The federal funds futures market expects the Fed to begin cutting interest rates as soon as March, possibly by as much as 175 basis points by December, from its current target range of 5.25% to 5.5%, according to the CME FedWatch tool on the CME website. FedWatch. Friday.
“Doesn't tend to them”
As for portfolio placement, Pragar said Aspiriant prefers to split stock portfolios between opportunistic and defensive bets while underweighting the Big Seven mega-cap technology stocks that carried the S&P 500 to its huge gains last year.
“We have these items in our portfolio but we don’t tend to them,” she added.
The so-called “Great Seven” stocks, which collectively have a large weight in the S&P 500, are “very expensive,” even though most of the other stocks in the index are, Raheel Siddiqui, chief investment strategist at Neuberger Berman, said by phone. “Reasonably priced.” .
Big Tech's massive rally has seen the S&P 500 rise 24.2% in 2023.
“The market is tired now,” Crosmark Doll said. “It has pulled back hard from the October lows, and it's just a matter of pausing and taking a breather and hoping that fundamentals can catch up with higher prices.”
The US stock market will be closed on Monday for MLK Day.
