Equity Markets Start 2024 Bearish As Interest Rates Rise On Fed Talk (Weekly Cheat Sheet)

Hold on to your hats, investors! After a thrilling nine-straight week of gains in 2023, the stock market has hit a bit of turbulence. The Vanguard Mega Cap Growth ETF (MGK) saw a notable drop of 3.0%, outpacing the S&P 500’s decline of 1.5%.

And let’s talk about Apple (AAPL) – it took a nearly 6.0% nosedive following two analyst downgrades and some unsettling news about a potential DOJ antitrust case.

Sector Shuffle: Winners and Losers

  • Utilities Sector: This sector brightened up with a 1.8% gain this week, a stark contrast to its 10.2% fall last year.
  • Energy Sector: It saw a 1.1% rise this week, bouncing back from a 4.8% decline in 2023.
  • Consumer Staples: Eked out a modest 0.03% gain this week, following a 2.2% drop last year.

In contrast, the information technology sector fell by 4.1%, and the consumer discretionary sector dipped by 3.5%, both sectors reversing their previous year’s outperformance.

Bonds and Interest Rates: The Rising Tide

Interest rates have been climbing, with the 10-year yield jumping 16 basis points to 4.04%. This increase is partly due to the Federal Reserve’s less dovish stance than many had hoped for. The December Employment Situation Report and the ISM Services PMI stirred the pot further, injecting uncertainty about the Fed’s future rate cut plans.

Market Movers and Shakers

  • Apple (AAPL): This tech giant’s shares fell more than 3.0% after a Barclays downgrade.
  • Russell 3000 Growth Index: Experienced a 2.8% decline, in contrast to the Russell 3000 Value Index’s milder 0.6% fall.

Economic Data Reports: Reading Between the Lines

  • December Employment Situation Report: Nonfarm payrolls and average hourly earnings exceeded expectations.
  • December ISM Services PMI: Revealed a more significant than expected slowdown in service sector growth.

What Does This Mean for Investors?

Investors, it’s time to buckle up. The market’s recent shifts suggest a reevaluation of expectations. Strong employment numbers might limit the Fed’s rate cuts, while the service sector’s slowdown could align with the current rate-cut forecasts.

Commodities & Crypto

OIL & Energy

In the first week of 2024, oil saw a modest gain of 1%, buoyed by escalating tensions in the Middle East. However, oil prices are still feeling the heat from a challenging 2023, where crude prices dipped by about 10%.

The latest report from the US Energy Agency presented a mixed picture: while crude oil inventories decreased by 5.5 million barrels, there was a notable increase in inventories of refined products, especially gasoline. This reflects the fragile state of US consumption. Price-wise, Brent is hovering around $78.60, and WTI is at approximately $73.50.

Gold & Metals

The year 2024 hasn’t started on a strong note for copper and other industrial metals, which are currently on a downward trend. A strengthening dollar is putting pressure on this sector, pushing copper prices below $8,400 per metric ton in London. Nickel is also losing ground, affected by ramped-up production in Indonesia.

In the realm of precious metals, gold has retreated, impacted by rising bond yields and a robust US employment report. Despite these challenges, the gold is maintaining its stance, trading at around $2040.

Crypto

Since the dawn of the new year, Bitcoin has experienced a remarkable surge, soaring to $46,000. This impressive climb was primarily driven by swirling rumors suggesting the SEC’s impending approval of a Bitcoin ETF.

However, this upward trajectory was abruptly halted by opposing rumors, which clarified that such approval hadn’t been granted yet. As a result, Bitcoin retreated to its current standing of $43,500. The market now waits in anticipation, eager for more concrete information. Amid this uncertainty, MicroStrategy, known for holding the world’s largest Bitcoin portfolio, has further solidified its position by acquiring an additional 14,000 bitcoins.

CALENDAR & MOVERS

  • Thursday, January 11: CPI (MoM) (December)
  • Friday, January 12: PPI (MoM) (December)
  • Earnings

January 11th is a date to circle in your calendars, folks. The U.S. inflation report is set to drop, and it’s a biggie. Why, you ask? Well, it’s all about understanding the twists and turns of monetary policy. The December CPI report is expected to show a 0.3% month-over-month increase in both headline inflation and the core rate. But that’s not all – we’ve got other key data releases like consumer credit, international trade balance, and the producer price index. These numbers aren’t just digits; they’re the pulse of the economy!

Earnings Season: The Main Event

Hold onto your hats because January 12th marks the official start of the Q4 earnings season. And boy, do we have a lineup!

Earnings Spotlights

  • January 8: Jefferies Financial Group (JEF) and Helen of Troy (HELE) step up to the plate.
  • January 9: We’ve got Albertsons Companies (ACI), PriceSmart (PSMT), and Acuity Brands (AYI) in the spotlight. And keep an eye on Tilray Brands (TLRY) – options trading suggests a wild ride for their share price.
  • January 10: KB Home (KBH) takes center stage.
  • January 11: Infosys (INFY) – a tech giant, folks!
  • January 12: The heavy hitters come out swinging. We’re talking UnitedHealth Group (UNH), JPMorgan Chase (JPM), Bank of America (BAC), Wells Fargo (WFC), BlackRock (BLK), Delta Air Lines (DAL), and Bank of New York Mellon (BK).
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