Here are 5 questions that traders ought to be asking as 2024 begins

“The focus in 2024 shifts from 2023’s recession and inflation tail risks to degrees of normalization in growth, policy and cross-asset relationships,” stated Stuart Kaiser, head of fairness buying and selling technique at Citigroup Global Markets, in his crew’s first shopper report of the brand new yr.

In the report, which was seen by MarketWatch, Kaiser laid out 5 questions that would have main penalties for markets within the new yr. He expects to have solutions in “early-ish 2024.”

Does broader earnings development imply broader management?

It’s exhausting to think about the stock-market rally broadening out if corporations wrestle to again up final yr’s positive aspects with earnings development.

Kaiser and his crew consider earnings might want to develop extra evenly throughout the S&P 500’s 11 sectors for shares to see a broad-based rally in 2024. But earnings nonetheless characterize a key threat for markets, since throughout Wall Street, analysts extensively count on to see them increase after a lackluster yr for earnings development in 2023.

Kaiser and his crew have a very rosy outlook. They count on that 5 of 11 sectors will report development of at the least 10% in 2024, increased than the consensus estimates collected by Bloomberg.

Over at FactSet, the bottom-up consensus estimate requires S&P 500 companies to develop earnings by 11.7% throughout the calendar yr 2024.

Will a U.S. recession lastly arrive?

Another key query for markets: Has the U.S. economic system put the danger of recession within the rear view mirror?

Or is it nonetheless potential that the U.S. economic system might sink beneath the load of the Fed’s aggressive interest-rate hikes.

Citi’s U.S. economic system crew tasks a recession starting within the second quarter. Regardless of whether or not this involves cross or not, Kaiser and his crew count on merchants will likely be paying extra consideration to GDP and labor market knowledge following two years the place inflation studies and conferences of the Fed’s policy-setting committee generated bigger reactions in markets.

Think of it as one other relationship in markets that Kaiser expects will revert again to its historic norm in 2024.

“Equity markets typically move more on growth than inflation data. That pattern reversed during the past two years with CPI and FOMC days taking precedence. We expect a shift back towards ‘normal’ in 2024 unless inflation hooks higher again,” he stated.

What is the Fed’s rate-cut calculus?

There has already been loads of chatter on Tuesday about interest-rate derivatives markets pricing in as many as six charge cuts from the Fed in 2024.

But in keeping with Kaiser, the Fed’s reasoning for slicing charges will probably be as, or extra, vital than the quantity and tempo.

“The ‘why’ matters. Insurance cuts would be very positive for equity markets, but if cuts are demanded by recession conditions, markets will first sell off sharply,” Kaiser stated.

Will traders see stock-bond correlation revert again to regular

MarketWatch tackled this subject again in December: after two years the place shares and bonds climbed, or bought off, in lockstep, will traders see the cross-asset relationship return to regular?

See: Why the 60/40 portfolio is poised to make a comeback in 2024

Kaiser and his crew count on the correlation between U.S. shares and bonds to slip again into destructive territory this yr.

Should traders fear a few January rotation?

Investors shouldn’t get too labored up if the expansion shares that helped prop up the market in 2023 wrestle at first of the brand new yr.

Turns out, this isn’t unusual. According to Citi’s evaluation of fairness issue efficiency, momentum shares have a robust seasonal sample of not liking January very a lot, because the chart under exhibits.

Already, the Nasdaq Composite
COMP
is down greater than 1% throughout the first buying and selling session of the brand new yr because the market struggles.

Investors who need to revenue from a extra enduring change in market management ought to think about bullish name choices tied to an ETF that tracks the Russell 2000
RUT,
or betting that the equal-weighted model
RSP
of the S&P 500
SPX
outperforms its market-cap weighted sibling.

U.S. shares are on observe to complete the primary session of the yr within the purple, with the S&P 500 down 20 factors, or 0.4%, at 4,749. The Nasdaq off 193 factors, or 1.3%, at 14,816.

Meanwhile, the Dow Jones Industrial Average
DJIA
was up 47 factors, or 0.1%, at 37,741, whereas the small-cap Russell 2000 was up 2 factors, or 0.1%, at 2,028.