An Overview of the Hurdles Facing Stocks in 2024
Stocks stumble into 2024, interrupting the impressive 2023 surge With the US national debt skyrocketing to a staggering $34 trillion and job openings plunging to a 2-year low in November, challenges loom for the markets
The new year started off with a stock selloff, putting a halt to the 2023 market rally. Some investors believe that the intense year-end rally has transitioned into a period of consolidation, leading traders to sell off some of their overgrown holdings. The S&P 500 index is down 1.4% this week, the Nasdaq Composite has dropped by 2.8%, and the Dow Jones Industrial Average has seen a 0.7% decrease.
Following a downgrade of Apple's stock by Barclays, the broader market was dragged down as other major tech companies also declined. This trend continued into Wednesday as the initial excitement over potential interest rate cuts began to fade.
"Considering the strong finish to 2023, it's not unexpected to see some profit-taking at this point," noted Craig Erlam, senior market analyst at OANDA, in a statement on Wednesday.
In early 2023, investors were anticipating a recurrence of the previous year's poor performance due to high inflation, the Federal Reserve's efforts to control inflation, and the possibility of a recession.
However, the US stock market defied expectations and avoided a recession, despite facing challenges such as regional banking instability, a debt ceiling crisis, and geopolitical tensions. The S&P 500 finished the year 24% higher, the Dow increased by 14%, and the Nasdaq surged by 43%.
Investors still face uncertainties as recession concerns and worries about war in the Middle East persist on Wall Street. The upcoming US election also poses a threat of market volatility, although historical data suggests that the S&P 500 index tends to perform well during the fourth year of presidential terms. Additionally, the depletion of consumers' savings accounts, which have fueled strong spending and helped offset the Federal Reserve's aggressive interest rate hikes, could lead to a challenging start to the year, according to some investors.
"The first quarter of the year might pose challenges," noted Alex McGrath, chief investment officer at NorthEnd Private Wealth, on Tuesday.
While inflation has decreased, it still exceeds the Fed's 2% target. The labor market continues to perform well, but any unexpected data could disrupt investors' expectations of an impending rate cut by the central bank. The upcoming December jobs report could be the first test of this year's optimism. The increase in bond yields this week indicates lingering uncertainties.
Despite the recovery of stocks from their 2022 losses, many investors remain cautious. Actively managed funds still have a higher exposure to traditionally safe consumer staples stocks compared to the beginning of 2022, while exposure to the more economically-sensitive consumer discretionary sector is lower, according to Bank of America Global Research.
In a recent note, the bank's strategists noted that "peak recession fears are likely behind us, but positioning still reflects more fear than greed."
The cheer that fueled a nine-week rally to close out 2023 may have faded, but it doesn't mean it's gone. According to a December survey by Bank of America Securities, fund managers are more optimistic about stocks than they have been since January 2022. Additionally, CNN's Fear and Greed Index, which monitors seven market sentiment indicators in the United States, is currently showing a "greed" reading.
US national debt hits record $34 trillion
The United States government's debt has reached a record-breaking $34 trillion, occurring just before Congress faces impending deadlines to reach a consensus on new federal funding initiatives. This information was reported by my colleagues Hanna Ziady and Tami Luhby.
The Treasury Department's data revealed that the "total public debt outstanding" reached $34.001 trillion on December 29. This figure, also referred to as the national debt, represents the accumulated borrowing by the US federal government throughout the nation's history.
This milestone was reached just three months after the US national debt exceeded $33 trillion, as the budget deficit, which is the disparity between government spending and tax revenue, continued to grow.
Maya MacGuineas, president of the Committee for a Responsible Federal Budget, a fiscal watchdog, described the record figure as "a truly disheartening accomplishment." "Even though our current level of debt poses serious threats to our economy and national security, America continues to rely on borrowing," she stated on Tuesday.
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US job openings fell to fresh 2-year low in November
In November, US job openings dropped to their lowest level since March 2021, indicating a slowdown in the country's robust job market. According to my colleague Bryan Mena's report, the Labor Department stated that there were 8.79 million seasonally adjusted job openings in November, down from the upwardly revised 8.85 million in October. This figure was in line with economists' expectations of 8.77 million openings, as reported by FactSet.
Job openings have decreased from a peak of 12 million in March 2022, but they still remain higher than pre-pandemic levels, as reported by the latest Job Openings and Labor Turnover Survey (JOLTS). The most recent figures on Wednesday indicate that the job market continues to show a gradual decline, with economic activity slowing down due to the current 22-year high interest rates. Federal Reserve officials have suggested that further slowing of the economy may be necessary to ensure that inflation is moving steadily towards the central bank's 2% target.
The labor market continues to show signs of cooling, as the report revealed a decrease of 363,000 in the number of hires in November, down to 5.47 million. This marks the lowest level since April 2020, when the Covid-19 pandemic initially disrupted the US economy. Even without the pandemic's impact, hires have not been at this level since 2017.
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