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If the end of 2023 were a party for markets, the first few trading days of 2024 have certainly felt like the hangover. It may not be an entirely bad thing if the headache is a result of investors rethinking past decisions and planning to be more responsible in the future.
Such a reassessment would explain much of the first four trading days of the year. After the so-called Magnificent Seven dominated headlines and portfolios for much of 2023, the tech-heavy
Nasdaq Composite
slid 3.25% on the week.
Apple,
down 5.9%, was a particularly poor performer following a couple of analyst downgrades.
Losses in other indexes, where Apple is a smaller weighting, were more muted, if still painful. The
S&P 500
index slid 1.5% while the
Dow Jones Industrial Average
fell 0.6%—snapping a nine-week winning streak for both.
If falling yields helped drive markets higher last year, their rise this past week couldn’t have helped. The 10-year Treasury, for one, ticked above 4% by week’s end as traders tried to gauge what Friday’s nonfarm payrolls data implied about the Federal Reserve’s path on interest rates.
At first blush, employment data for December looked strong, with the economy gaining 216,000 jobs on the month, above the consensus for 173,000. Unemployment also held steady at 3.7%. But a look below the surface showed weaknesses: Job gains for October and November were cut by a combined 71,000. The mixed message whipsawed the market, which couldn’t decide whether it meant that the Fed would hold rates steady for longer to subdue a too-hot economy, or cut rates as it managed a soft landing before the cracks in the labor market turned into fractures.
That uncertainty could lead investors to shy away from making any big moves during the first few weeks of the year. “There is nothing on the charts or in the data that suggests the markets are finished [with] their correction,” writes Guy Ortmann, senior technical analyst at R.F. Lafferty & Co. “Caution remains the name of the game, as more downside appears likely.”
But a weak start to the year doesn’t portend weakness for the full year. Even when the S&P 500 ended each of the first four trading days of the year lower—a feat it managed to dodge this past week, but which has happened twice since 1928—it finished the year with gains both times.
Earnings season, which kicks off next Friday with big banks, airlines, and healthcare stocks all reporting, could determine whether the downdraft continues or not. What CEOs say about 2024 will probably matter more than fourth-quarter numbers, particularly with the market expecting profits to grow by 11.6% in 2024.
With a bit of luck, the hangover will be over by then.
Write to Carleton English at carleton.english@dowjones.com
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