New Year Not Off to a Happy Start

Equity markets struggled to start the new year and ended lower last week. Overbought conditions, stretched valuations, mixed economic data, and peak interest rates all contributed to the selling pressure. The tone last week was defensive, and tech stocks floundered. The Russell 2000 and NASDAQ led the downside this week, falling 3.73% and 3.23%, respectively. The Dow Jones Industrial Average and S&P 500 fared better, declining 0.56% and 1.50%, respectively. Elsewhere, US Treasury yields rose across the curve with the long end (5+ years) now back above 4%.

The first trading day of the year was a rough one for equities, with the NASDAQ leading the downside. Tech stocks bore the brunt of the selling against the backdrop of Apple’s downgrade by Barclays. The Dow and the S&P 500 faced less intense selling pressure as the more defensive sectors such as health care and consumer staples were relative outperformers. Oil prices jumped as geopolitical tensions continued to rise on reports that Iran sent a warship to the Red Sea.¹

Equities continued to struggle on Wednesday and ended the day near their lowest levels. The NASDAQ led the downside, marking its fourth straight decline. December FOMC meeting minutes confirmed that policy rates are likely near peak levels and rate cuts by year end would be appropriate.²  However, officials still see a high degree of uncertainty around the economic outlook.²  The December ISM Manufacturing Index came in at 47.4% and new orders were weaker and lower by 1.2%.³  Elsewhere, November JOLTS reported 8.79 million job openings – the lowest level in nearly three years.⁴

Thursday marked another day of declines with equity markets ending near lows once again. December ADP payrolls topped expectations at 164K, ahead of estimates of 125K.⁵  Services provided the bulk of the job gains driven by leisure/hospitality and education/healthcare.⁵  Initial jobless claims came in at 202K compared to estimates of 216K, the lowest reading since October.⁶  The US labor market continues to show strength and interest rates rose in response.

Equity markets rebounded on Friday following a better-than-expected payrolls report. December added 216K jobs and unemployment rate remained at 3.7% vs estimates of 162K and 3.8%.⁷  However, November and October’s numbers were revised lower. Elsewhere, ISM Non-Manufacturing PMI came in at 50.6% below expectations of 52.5%.⁸ While markets ended the day off their worst levels, the S&P and NASDAQ broke their streaks of nine consecutive weeks of gains.

Sources
1. https://www.cnbc.com/2024/01/01/iranian-warship-alborz-enters-the-red-sea-tasnim.html#:~:text=Iran’s%20Alborz%20warship%20has%20entered,by%20forces%20allied%20to%20Tehran.
2. https://www.federalreserve.gov/monetarypolicy/fomcminutes20231213.htm
3. https://www.ismworld.org/supply-management-news-and-reports/reports/ism-report-on-business/pmi/december/
4. https://www.bls.gov/news.release/jolts.nr0.htm
5. https://adp-ri-nrip-static.adp.com/artifacts/us_ner/20240104/ADP_NATIONAL_EMPLOYMENT_REPORT_Press_Release_2023_12%20FINAL.pdf
6. https://www.dol.gov/ui/data.pdf
7. https://www.cnbc.com/2024/01/05/jobs-report-december-2023-payrolls-increased-by-216000-in-december.html
8. https://www.ismworld.org/supply-management-news-and-reports/reports/ism-report-on-business/services/december/