Tucker Financial Weekly Market Review: January 5th, 2024

Weekly Market Report: January 5th, 2023

Markets went back to work in the first week of 2024 with a bit of consolidation, snapping a nine-week winning streak, following a robust Santa Claus rally to end the year. Drivers last week centered around the release of December FOMC minutes, a notable move higher in bond yields, and a fairly heavy slate of economic
reports. U.S. equity markets started the year down approximately 1.75% (R3000) while developed (-1.5%) and emerging (-2%) equity markets followed suit. Interest rates backed up across the curve pushing the 10yr UST yield back up over the key psychological 4% threshold. The USD and commodity markets were up approximately 1% with the latter helped by a rally across all energy contracts, leaving WTI back up to $73.81.

Market Anecdotes

• We see largely the same set of questions on the landscape including the outlook for growth, monetary policy trajectory, higher interest rate implications, and health of the labor market/consumer.
• A touch of yesterday always informs tomorrow so before heading full steam into 2024, a clear-eyed look back at 2023 capital markets and key dynamics seems to make good sense.
• A research note from Bianco Research highlighted the unprecedented 40 year easing of financial conditions as a big driver (and reflection) of the substantial stock and bond market rallies that occurred in the last two months of 2023.
• Market expectations of 175 bps in cuts in 2024 beginning in March with a backdrop of 3.7% unemployment, respectable GDP growth, and a still healthy 3.2% core PCE might be a little offside but if not, it may spark growth, and unfortunately, a new bout of inflation.
• As opposed to the synchronized global central bank hiking cycle, the cutting cycle is expected to differ but the U.S., Euro area, U.K., and Canada will be similar with OIS markets currently expecting cuts beginning in Q2 and 5 to 6 cuts priced in by the end of 2024 across the board.
• Fourth quarter earnings season kicks off next week with earnings growth consensus of 1.3%, significantly below (downward revisions) the 8.1% consensus 4Q estimate on September 30th. Full year 2024 earnings expectations are around 12%, which many feel is lofty.
• Red Sea attacks by Iranian proxies in Yemen, the Houthis, have the potential to spark another surge in energy prices with just under 9% of global oil and refined products being transported through the Red Sea.
•  A positive economic consensus for 2024 has grown markedly in the past two months but it seems mostly limited to the U.S. with other developed economies being revised downward.

Economic Release Highlights

• December payrolls rose 216,000, more than the 164,000 consensus and above the forecast range (100,000- 200,000). The unemployment rate held at 3.7%. Labor force participation rate fell notably to 62.5%. Average Hourly Earnings were +0.4% MOM and +4.1% YOY.
• The JOLT Survey for November showed job openings marginally lower to 8.790M.
• U.S. ISM Manufacturing Index for December remained in contraction at 47.4, generally in line with consensus and a marginal improvement over the prior month. Final December U.S. Manufacturing PMI was revised slightly lower from 48.2 to 47.9.
• U.S. ISM Services Index for December registered 50.6, well below consensus and last month’s reading which were both 52.7.
• December non-U.S. PMI readings (C, M, S) for China (52.6, 50.8, 52.9), India, (58.5, 54.9, 59.0), U.K. (52.1, 46.2, 53.4), and Eurozone (47.6, 44.4, 48.8) all blended to a Global reading of (51.0, 49.0, 51.6) – a sixteenth consecutive Manufacturing PMI decline.
• November Factory Orders came in within consensus forecast range at +2.6% following a 3.4% decline the prior month.