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The stock market ended 2023 on a historic winning streak.
The S&P 500 (^GSPC) has risen for the ninth consecutive week, beginning the new year with its longest streak of weekly gains since 2004.
The first week of trading in 2024 will be an immediate test of stock gains with the key December jobs report due to be released Friday morning. The economic calendar will also include Federal Reserve Board meeting notes, job openings updates, and the latest data on manufacturing and service sector activity.
On the corporate side, here’s a quarterly report from Cal-Maine Foods. (CALM), Walgreens Boots Alliance (WBA), and Constellation Brands (STZ) highlight a week of sparse corporate performance. Electric car maker Tesla’s (TSLA) quarterly shipments will also be closely tracked by Wall Street.
The market closes for New Year’s Day on Monday, with trading expected to resume on Tuesday.
Two months of strong gains have pushed several major indexes to or near their record highs reached at the end of last year. The Dow Jones rose 13.7%, or more than 4,500 points, in 2023, topping 37,000 points for the first time in history. The S&P 500 index rose 24%, pushing the major average to near an all-time high of 4,796.56. Meanwhile, the Nasdaq Composite Index (^IXIC) recorded its highest annual return since 2020, increasing by 43.42%.
The stock market’s rally headed toward late 2023 as there was growing belief that the U.S. economy could achieve its much-vaunted “soft landing” (inflation falling back to the Fed’s 2% target without a recession). A key part of that story is that the labor market has held up better than many expected.
Notable parts of that storyline include that the unemployment rate remains near the same level as when the Fed began its rate hike cycle, and that the ratio of unemployed to job openings has reached its lowest level in more than two years. and that the increase in layoffs tracked by statistics has been kept to a minimum. Weekly unemployment insurance claims.
To some economists, all this indicates that the labor market has cooled enough that consumers draining cash won’t push up inflation, but it’s not so weak that a recession could be coming. It is said that there is.
The forecast for December’s employment report reflects a similar sentiment.The report is expected to show 168,000 nonfarm jobs were added to the U.S. economy last month as unemployment rates rise. to 3.8%, according to Bloomberg data. The US economy added 199,000 jobs in November, and the unemployment rate unexpectedly fell to 3.7%.
“While a sharp contraction in employment is not yet expected, we remain cautious heading into 2024,” Jefferies’ economics team, led by Thomas Simmons, said in a research note on Friday. “With the UAW strike finally in sight, we expect the fluctuations in manufacturing payrolls seen over the past few months to smooth out.”
Markets are entering the new year betting that the Fed will cut interest rates in March. As of Tuesday, investors believed there was an 82% chance of a rate cut by the end of the March meeting, according to the CME FedWatch tool.
But economists disagree about that prediction. Ellen Zentner, chief U.S. economist at Morgan Stanley, said it would take more economic cooling than the December jobs report and other statistics currently suggest for the market’s current expectations for a March interest rate cut to materialize. It is necessary to show signs of
“The resilience of the labor market, which has been trending slowly down, also suggests that cuts will begin later than the market expects,” Zentner said in a Dec. 19 research note.
Zentner believes monthly payroll additions would need to fall below 50,000 by the February report for the Fed to make cuts in March, consistent with consistently low inflation statistics. Still, the employment slowdown needs to be a trend, not just a low number.
“Given the turbulent trends in nonfarm payrolls, I don’t think one weak number is enough to cut interest rates,” Zentner said of the jobs report.
Morgan Stanley’s base case remains that the Fed’s first rate cut occurs in May.
Overall, one of the biggest questions facing investors will be whether the rally in late 2023 has simply pushed up the timeline for investors’ expected returns in 2024., Or if the market has to rise further above the current high price level.
Ryan Detrick, chief market strategist at Carson Group, points out that history is on its side for stocks to continue rising into 2024.
In years when the S&P 500 index rose more than 10% in November and December (which just happened at the end of 2023), the benchmark average rose an average of 19.5% the following year. Detrick’s research.
But even some of the market’s biggest bulls have recently noted that these gains are unlikely to continue at a steady pace. Tom Lee, head of research at Fundstrat, has set one of the highest targets for the S&P 500 index next year at 5,200 stocks, and expects a decline in major averages to occur in early 2024. .
“For us, it’s just a matter of days before we reach new all-time highs.” [for the S&P 500]” Lee wrote in a memo to customers Friday. “But then we are likely to consolidate.”
Lee believes several key concerns could weigh on the market.he believes investors can gain He said he was “itchy” about when the Fed would cut rates, noting that the economy typically slows around February or March of an election year.
“In the current situation, if the S&P 500 hits a new all-time high or begins a modest decline, the S&P 500 could reach 4,400-4,500,” Lee wrote. “This means the S&P 500 has gotten most of its gains. [the second half of 2024]”
weekly calendar
Monday
The market is closed for the year-end and New Year holidays.
Tuesday
Revenue: no special instruction
Economic data: S&P Global US Services PMI, December, final (48.4 expected, previous 48.2). MBA Home Loan Application Week Ending December 29th
Wednesday
Revenue: Calmain Food Group (CALM)
Economic data: JOLTS job openings, November (forecast 8.85 million, previous 8.73 million). ISM Manufacturing, December (expected 47.2, previous 46.7). ISM Paid Price, December (previously 49.9). FOMC Minutes
Thursday
Revenue: Conagra Brands (CAG), Lamb Weston (LW), Walgreens (WBA)
Economic data: ADP employment change, December (forecast 113,000, previous 103,000) Challenger employment reduction, same month last year, December (previous 40.8% decrease). Weekly number of new unemployment insurance claims, December 30th (previously 218,000) S&P Global US Composite PMI, December, final value (previously 51).
Friday
Revenue: Constellation Brand (STZ)
Economic data: Number of non-farm employment in December (forecast: +168,000; previous estimate: +199,000). Unemployment rate for December (expected 3.8%, previously 3.7%). Average hourly wage in December compared to the previous month (forecast +0.3%, previous +0.4%). December average hourly wage, year-on-year change (forecast +3.9%, previous +4.0%). Average weekly working hours, December (expected 34.4 hours, previous 34.4 hours). Labor force participation rate, December (expected 62.8%, previous 62.8%). Factor orders, November (expected +2.1%, previous -3.6%). Durable goods orders in November (previously increased by 5.4%). ISM Services, December (expected 52.5, previous 52.7)
Josh Schafer is a reporter for Yahoo Finance.
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