CATH - The S&P 500 Retreats In First Trading Week Of 2024

2024-01-09 01:01:00 ET

Summary

• The S&P 500 index remains just 2.1% below its 3 January 2022 all-time high closing value of 4,796.56.
• The major news prompting that change is uncertainty on the timing and direction of the Fed's next change in the Federal Funds Rate.
• The Fed is expected to hold the Federal Funds Rate steady in a target range of 5.25-5.50% until 20 March 2023 (2024-Q1), after which, investors anticipate a series of quarter point rate cuts at six-to-twelve-week intervals through the end of 2024.

The S&P 500 (Index:[[SPX]]) retreated 1.5% in the first trading week of 2024. The index closed out the week at 4,697.24 .

The index remains just 2.1% below its 3 January 2022 all-time high closing value of 4,796.56. Which is to say the S&P 500 is still just an interesting* day of trading away from potentially setting a new record. Or ideally, a good week with smaller daily changes for the index.

But despite our optimism that the market's typical day-to-day volatility could do the job without any news to push it over the top, nothing like that happened last week. Instead, we find the trajectory of the index turned toward the middle of the current redzone forecast range on the latest update to the alternative futures chart, which we've rolled forward to show the dividend futures-based model 's projections for the first quarter of 2024.

That change is consistent with investors shifting their forward-looking focus from 2024-Q2 back toward the current quarter of 2024-Q1, which is a development we anticipated when we first presented the current redzone forecast range back on 18 December 2023.

The major news prompting that change is uncertainty on the timing and direction of the Fed's next change in the Federal Funds Rate. Here are the past week's market-moving news headlines, which provide that needed context.

Tuesday, 2 January 2024

• Signs and portents for the U.S. economy:
  • Oil prices settle lower to start 2024 as supply concerns ease
  • US construction on solid ground; manufacturing under pressure
• Mixed growth signs, bigger stimulus developing in China:
  • China's home sales during New Year holiday fall 26% compared with 2023
  • China factory activity growth accelerates in Dec - Caixin PMI
    • Asia's factories end 2023 on soft note amid fragile China recovery
  • China December factory contraction deepens, more stimulus on the cards
• Bigger trouble developing in the Eurozone:
  • Euro zone economy likely entered recession last year
• S&P, Nasdaq begin 2024 with lower close as Apple, big tech weighs
  • Apple downgraded by Barclays on hardware concerns, including iPhone 15 weakness
  • Apple leads premium smartphone sales; market share slides

Wednesday, 3 January 2024

• Signs and portents for the U.S. economy:
  • Oil prices settle up 3% on supply concerns after oilfield shutdown in Libya
    • US was top LNG exporter in 2023 as hit record levels
  • US bankruptcies surged 18% in 2023 and seen rising again in 2024 -report
  • US job openings, quits near three-year low as labor market eases
• FOMC Minutes: "A lower target range for the federal funds rate would be appropriate by the end of 2024"
  • Fed minutes cite lower inflation risks, concern about 'overly restrictive' policy
  • At December meeting, some Fed officials mulled end to balance sheet cuts
• BOJ minions find reasons to keep never-ending stimulus alive:
  • BOJ's Ueda keeps wage hike hopes, quake dampens bet of January policy shift
• Bigger trouble developing in the Eurozone:
  • German unemployment edged up in December
• Wall St notches second lower finish as 2024 starts with profit-taking
  • US chip stocks tumble after strongest year since 2009

Thursday, 4 January 2024

• Signs and portents for the U.S. economy:
  • Oil settles lower on massive US fuel inventory builds
• Nasdaq, S&P, and Dow ended lower again while yields pushed up

Friday, 5 January 2024

• Signs and portents for the U.S. economy:
  • Oil prices rise over $1 on Middle East tensions
    • Maersk warns of major disruption as it diverts ships away from Red Sea
  • US service sector slows in December as employment plummets - ISM survey
    • The biggest jobs news today wasn't in the employment report
  • Healthy US December payrolls puts March Fed pivot in doubt
• Fed minions send mixed signals on next direction for interest rate changes:
  • Fed's Barkin opts for rate cuts on normalizing economy - report
  • Fed's Logan: should not rule out another rate hike
• ECB minions say they want higher rates to fight inflation, markets say they need rate cuts to cope with developing recession:
  • Euro zone inflation jump cools case for ECB rate cuts
  • ECB hardliners are running out of excuses
• Nasdaq, S&P, and Dow ended slightly higher but closed lower for the first week of 2024
  • S&P 500, Nasdaq climb as fresh data boosts rate-cut bets again

The CME Group's FedWatch Tool projections were unchanged from the past week. The Fed is expected to hold the Federal Funds Rate steady in a target range of 5.25-5.50% until 20 March 2023 (2024-Q1), after which, investors anticipate a series of quarter point rate cuts at six-to-twelve-week intervals through the end of 2024.

The Atlanta Fed's GDPNow tool 's estimate of real GDP growth for the current quarter of 2023-Q4 ticked up to +2.5% from the +2.3% it projected last week. The Atlanta Fed's projections for GDP growth in the final quarter of 2023 will continue until they are replaced by the BEA's initial estimate of that growth at the end of January 2024.

* For the record, we define a trading day as "interesting" if the closing value of the S&P 500 changes by more than two percent from the previous trading day's close. Most such days tend to be clustered together when they happen. Whether that would be a good or bad thing for investors remains to be seen....

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