U.S. shares are struggling to advance in early 2024, as traders digest the beginning of firm earnings experiences kicked off by Wall Street banks and eye inflation forward of a closely-watched retail gross sales report.
“The stock and bond markets are marking time,” mentioned Yardeni Research in a Jan. 11 word. “They might continue to do so during the first half of this year,” the agency wrote, however “the stock market should resume its advance during the second half.”
The S&P 500 index has been buying and selling close to its all-time closing peak reached greater than two years in the past, briefly rising above it on Thursday because it flirted with a recent document shut, however the index ended the session with a slight decline, and its positive factors this previous week left it barely within the inexperienced for January.
The two different main U.S. inventory indexes, the Dow Jones Industrial Average
DJIA
and Nasdaq Composite
COMP,
ended Friday with modest declines 12 months thus far regardless of weekly positive factors. Investors are actually waiting for a report on U.S. retail gross sales in December, due out on Wednesday, for a window into the power of shoppers to maintain fueling the economic system.
“We know the consumer, largely because of the job market, has held our economy up reasonably well,” mentioned Bob Doll, chief funding officer at Crossmark Global Investments, in a cellphone interview. “The question will be, are they still able to spend money?”
Doll mentioned he expects client spending in December in all probability slowed a bit from November, as folks now not have the identical pile of extreme financial savings they constructed up throughout the pandemic.
He forecasts the S&P 500 might finish 2024 at 4,350 which is down 9% from its closing stage Friday, saying he expects firms’ earnings progress to be decrease than consensus estimates.
The S&P 500
SPX
edged up on Friday to shut at 4,783.83 – its highest stage since Jan. 4, 2022 and 0.3% beneath its document shut of 4,796.56 on Jan. 3, 2022, in response to Dow Jones Market Data.
“I think it’s fully valued,” mentioned Doll. The index’s present price-to-earnings ratio of 20 is “probably not sustainable.”
As for the beginning of earnings season, shares of JPMorgan Chase & Co.
JPM,
Bank of America Corp.
BAC,
and Wells Fargo & Co.
WFC,
all ended down on Friday after reporting their fourth-quarter outcomes.
Goldman Sachs Group Inc.
GS,
and Morgan Stanley
MS,
will every launch their quarterly earnings on Tuesday, following the three-day weekend honoring the late civil-rights chief Martin Luther King Jr.
Meanwhile, UnitedHealth Group Inc.
UNH,
was the worst-performing inventory within the Dow Jones Industrial Average on Friday after reporting its fourth-quarter earnings, FactSet information present.
‘A big ask’
“The market is looking for a trifecta,” together with the U.S. avoiding “even a mild recession,” the Federal Reserve doing round six cuts to rates of interest by the top of December, and inflation falling sooner to the Fed’s 2% goal than anticipated, mentioned Sandi Bragar, chief shopper officer at Aspiriant, in a cellphone interview.
“Those are three pretty lofty things,” she mentioned. “All three of those things happening is a big ask.”
This previous week traders noticed two readings on inflation in December, together with client and wholesale costs. Data launched from the consumer-price index on Thursday had a barely greater rise than Wall Street anticipated and accelerated to a year-over-year fee of three.4%, whereas a Friday report on wholesale inflation measured by the producer value index was softer than anticipated.
The consumer-price-index studying was “hotter” than forecast, “but underneath the surface it shows that the Fed is very close to achieving” its 2% inflation goal, in response to a DataTrek Research word emailed Thursday. The federal-funds-futures market took the inflation information “as a sign that the Fed will be more, not less, likely to cut rates this year,” mentioned DataTrek co-founder Nicholas Colas, within the word.
But Doll worries “inflation may not fall as fast as people” are hoping. It’s in all probability “a little more on the sticky side than the market thinks,” he mentioned.
Meanwhile, the U.S. unemployment fee has remained traditionally low, even with the Fed’s efforts to gradual the economic system by restrictively excessive charges as a way to carry down inflation.
Against the backdrop of a resilient labor market, actual wage progress has “provided a boost to consumers’ pocketbooks,” helped partially by a decline in gasoline costs, mentioned David Doyle, head of economics at Macquarie Group, mentioned in a cellphone interview.
But he worries the U.S. might even see an “undesirable rise” within the unemployment fee this 12 months, doubtlessly shut to five%, from 3.7% in December. “Our base case is that you have a year of flat real GDP growth in 2024, said Doyle, but “certainly a softer economic-growth environment.”
Doyle mentioned such an increase within the unemployment fee helps clarify a good portion of the 225 foundation factors of fee cuts he expects in 2024, starting in June. That would suggest 9 fee cuts.
The fed-funds futures market is anticipating the Fed might begin lowering charges as quickly as March, and presumably by as a lot as 175 foundation factors by December, from its present goal vary of 5.25% to five.5%, in response to the CME FedWatch Tool on Friday.
‘Not leaning into them’
As for portfolio positioning, Bragar mentioned Aspiriant favors a break up in fairness portfolios between opportunistic and defensive bets whereas underweighting the seven megacap Big Tech shares that carried the S&P 500 to its enormous positive factors final 12 months.
“We have them in the portfolio but we are not leaning into them,” she mentioned.
The so-called “Magnificent Seven” shares, which collectively have an outsized weighting within the S&P 500, are “quite expensive,” though most different equites within the index are “fairly priced,” Neuberger Berman’s senior funding strategist Raheel Siddiqui mentioned by cellphone.
Big Tech’s large surge propelled a 24.2% rise within the value of the S&P 500 in 2023.
Now, “the market is tired,” mentioned Crossmark’s Doll. “It ran so hard off that October low, it’s just taking a pause and a breather and hoping that fundamentals can catch up to the higher prices.”
The U.S. inventory market can be closed on Monday for MLK Day.
Source web site: www.marketwatch.com
