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Tag: S&P 500 Index

  • Stock investors fear ‘no-landing’ economy could spell trouble. What’s next?.

    Stock investors fear ‘no-landing’ economy could spell trouble. What’s next?.


    While the U.S. stock market has been pricing in a “soft-landing” scenario for the economy, a blowout January jobs report, relatively strong corporate earnings, and Federal Reserve Jerome Powell’s comments during the past week could point to the possibility of “no landing,” where the economy is resilient while inflation stays on target.  

    Such a scenario could still be positive for U.S. stocks, as long as inflation remains steady, according to Richard Flax, chief investment officer at Moneyfarm. However, if inflation reaccelerates, the Fed may be hesitant to cut its policy interest rate much, which could spell trouble, Flax said in a call. 

    What the past week tells us

    Investors have just gone through the busiest week so far this year for economic data and corporate earnings reports, with stocks ending at or near their record highs.

    The Dow Jones Industrial Average
    DJIA
    finished the week with its nineth record close of 2024, according to Dow Jones Market Data. The S&P 500 index
    SPX
    scored its seventh record close this year on Friday, while the Nasdaq Composite
    COMP
    is about 2.7% lower from its peak.

    The Fed kept its policy interest rate unchanged in the range of 5.25% to 5.5% at its Wednesday meeting, as expected. However, in the subsequent press conference, Fed Chair Jerome Powell threw cold water on market expectations that the central bank may start cutting its key interest rate in March, and underscored that they want “greater confidence” in disinflation. 

    Roger Ferguson, former Fed vice chairman, said Powell introduced “a new kind of risk, the risk of no landing.” 

    In that scenario, inflation will stop falling, while the economy is strong, Ferguson said in an interview with CNBC on Thursday. However, Ferguson said he doesn’t think it is the likely outcome.   

    Traders were pricing in a 20.5% likelihood on Friday that the Fed will cut its interest rates in its March meeting, according to the CME FedWatch tool and that’s down from over 46% chance a week ago. The likelihood that the Fed will kick off its rate cutting program in May stood at 58.6% on Friday.  

    The stronger-than-expected January jobs data released on Friday further eliminates the chance of a rate cut in March, said Flax. 

    The U.S. economy added a whopping 353,000 new jobs in January while economists polled by The Wall Street Journal had forecast a 185,000 increase in new jobs. Hourly wages rose a sharp 0.6% in January, the biggest increase in almost two years.

    The past week has also been heavy with earnings reports, as several tech giants including Microsoft
    MSFT,
    +1.84%    ,
    Apple
    AAPL,
    -0.54%    ,
    Meta
    META,
    +20.32%    ,
    and Amazon
    AMZN,
    +7.87%
    reported their financial results for the fourth quarter of 2023. 

    Among the 220 S&P 500 companies that have reported their earnings so far, 68% have beaten estimates, with their earnings exceeding the expectation by a median of 7%, analysts at Fundstrat wrote in a Friday note.  

    While the reported earnings by big tech companies have been “okay,” the guidance was not, said José Torres, senior economist at Interactive Brokers.

    What has been driving the tech stocks’ rally since last year was mostly the prospect of sales from artificial intelligence products, but tech companies are not able to monetize the trend yet, Torres said in a phone interview. 

    Adding to the headwinds is a comeback of concerns around regional banks. 

    On Thursday, New York Community Bancorp Inc.’s stock triggered the steepest drop in regional-bank stocks since the collapse of Silicon Valley Bank in March 2023. New York Community Bancorp on Wednesday posted a surprise loss and signaled challenges in the commercial real estate sector with troubled loans.

    Meanwhile, the Fed’s bank term funding program, which was launched in March last year to bolster the capacity of the banking system, will expire on March 11. 

    If the Fed could start cutting its key interest rate in March, it would be “sort of like the ambulance that was going to pick regional banks up and save them,” said Torres. “Now the ambulance is coming in May at the earliest, I think that we’re in a particularly risky period from now to May,” Torres said. 

    What should investors do 

    Investors should go risk-off before May, according to Torres. “Last year, goods and commodities helped a lot on the disinflationary front. This year for disinflation to continue, we’re going to need services to start contributing to that. Then we’re going to need to see an increase in the unemployment rate,” Torres said. 

    He said he prefers U.S. Treasurys with a tenor of four years or shorter, as the long-dated ones may be susceptible to risks around the fiscal deficit and government borrowing. For stocks, he prefers the healthcare, utilities, consumer staples and energy sectors, he said. 

    Keith Buchanan, senior portfolio manager at Globalt Investments, is more optimistic. The slowdown in inflation and the relatively strong economic data and earnings “don’t really paint a picture for a risk-off scenario,” he said. “The setup for risk assets still leans towards the bullish expectation,” Buchanan added. 

    In the week ahead, investors will be watching the ISM services sector data on Monday, the U.S. trade deficit on Wednesday and weekly initial jobless benefit claims numbers on Thursday. Several Fed officials will speak as well, potentially providing more clues on the possible trajectory of rate cuts.



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  • Etsy’s stock is having its best day in seven months after Elliott takes ‘sizable’ stake

    Etsy’s stock is having its best day in seven months after Elliott takes ‘sizable’ stake


    Investors bought up shares of Etsy Inc. on Thursday after the online crafts marketplace added to its board of directors a partner of hedge fund Elliott Investment Management L.P., which recently acquired a “sizable” stake in the company.

    Etsy
    ETSY,
    +9.31%
    said Marc Steinberg, who is responsible for public- and private-equity investments at Elliott, has been appointed to the board, effective Feb. 5, and will also join the board’s audit committee.

    “Etsy has a highly differentiated position in the e-commerce landscape and a uniquely attractive business model, supported by a distinctive and engaged community,” Steinberg said. “We became a sizable investor in Etsy and I am joining its board because I believe there is an opportunity for significant value creation.”

    Etsy’s stock shot up 8% in afternoon trading, to pare earlier gains of as much as 14.2%. The stock was headed for its best one-day gain since it climbed 9.2% on July 11.

    Elliott’s stake was acquired in recent months, as the fund’s disclosure of equity holdings through the third quarter did not list Etsy shares.

    “Marc’s appointment reflects our ongoing commitment to enhance the perspectives and expertise on the Etsy Board,” said Etsy Chairman Fred Wilson. “We look forward to benefiting from his voice in the boardroom as a seasoned and experienced investor as we continue our journey of creating a leading global e-commerce platform.”

    Etsy now has 10 board members.

    Etsy’s stock has run up 18.6% over the past three months, but has tumbled 48.5% over the past 12 months. That’s compared with the S&P 500 index’s
    SPX
    18.7% rally over the past year.

    Read (December 2023): Etsy to cut 11% of staff as CEO says company is on ‘unsustainable trajectory’

    At an investor conference in December, Chief Executive Josh Silverman said business has slowed since the post-pandemic boom, as people have “had enough of buying things” and are now spending primarily on eating out and travel. Inflation and the loss of government subsidies was also weighing on spending.

    Still, Silverman said, Etsy is now about two and a half times bigger than it was before the pandemic, and the company has more active buyers than it did at the peak of the pandemic.



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  • Oil prices jump after drone attack kills U.S. troops, escalating Mideast crisis

    Oil prices jump after drone attack kills U.S. troops, escalating Mideast crisis


    Oil futures popped higher Sunday evening, after a drone attack that killed three U.S. service members in northern Jordan, blamed by the White House on Iran-backed militants, marked a major escalation of tensions in the Middle East.

    West Texas Intermediate crude for March delivery
    CL00,
    +1.22%

    CL.1,
    +1.22%

    CLH24,
    +1.22%
    was up $1.09, or 1.4%, at $79.10 a barrel on the New York Mercantile Exchange. March Brent crude
    BRN00,
    +1.15%

    BRNH24,
    +1.14%    ,
    the global benchmark, gained $1.11, or 1.3%, to trade at $84.66 a barrel on ICE Futures Europe.

    Much will ultimately depend on the U.S. response and whether Iran takes action aimed at shutting down the Strait of Hormuz, Tariq Zahir, managing member at Tyche Capital Advisors, told MarketWatch on Sunday afternoon.

    “We are on the cusp of this escalating, which could seriously impact the flow of crude oil,” he said.

    Three U.S. service members were killed and more than two dozen injured in a drone strike on a U.S. base in northeast Jordan, according to U.S. Central Command. They were the first U.S. fatalities in months of attacks on U.S. bases by Iran-backed militias since the start of the Israel-Hamas war in October.

    President Joe Biden attributed the Sunday attack to an Iran-backed militia group and said the U.S. “will hold all those responsible to account at a time and in a manner (of) our choosing.” News reports said U.S. officials were still working to conclusively identify the precise group responsible for the attack, but have assessed that one of several Iranian-backed groups is to blame.

    Some congressional Republicans called for direct retaliation on Iran.

    “We must respond to these repeated attacks by Iran & its proxies by striking directly against Iranian targets & its leadership. The Biden administration’s responses thus far have only invited more attacks. It is time to act swiftly and decisively for the whole world to see,” wrote Sen. Roger Wicker of Mississippi, the senior Republican on the Senate Armed Services Committee, in a post on X.

    Oil futures rallied last week to their highest since November, but with gains attributed in part to production outages in the U.S. and more upbeat expectations around economic growth.

    “Crude already has the wind to its back, so this will only offer further upside,” Chris Weston, head of research at Australian brokerage Pepperstone told MarketWatch in an email.

    With the U.S. election later this year, “Biden needs to strike a balance between increasing aggression that potentially puts U.S. serviceman lives in danger and could potentially raise the cost of living…while also showing a defiant stance that shows his resolve against terror,” Weston said.

    Oil prices have seen short-lived rallies around developments in the Middle East since the start of the Israel-Hamas war, but have failed to build in a lasting geopolitical risk premium. West Texas Intermediate crude
    CL00,
    +1.22%

    CL.1,
    +1.22%    ,
    the U.S. benchmark, remains around $15 below its 2023 peak in the mid-$90s set in late September. Brent crude
    BRN00,
    +1.15%    ,
    the global benchmark, pushed back above $80 a barrel last week.

    Attacks by Iran-backed Houthi militants on Red Sea shipping have forced a rerouting of tankers and cargo ships. For crude, that’s had implications for the physical market but hasn’t interrupted the flow of crude from the Middle East.

    A move by Iran aimed at closing off the Strait of Hormuz, the world’s biggest oil-transportation chokepoint, remains a top worry.

    The strait is a narrow waterway that links the Persian Gulf with the Gulf of Oman and the Arabian Sea. At its narrowest point, the waterway is only 21 miles wide, and the width of the shipping lane in either direction is just two miles, separated by a two-mile buffer zone.


    Energy Information Administration

    Around 21 million barrels a day of crude moved through the waterway in the first half of 2023, equivalent to around a fifth of daily global consumption, according to the U.S. Energy Information Administration.

    The U.S. stock market has largely looked past Middle East tensions, with the S&P 500
    SPX
    returning to record territory this month, while the Dow Jones Industrial Average
    DJIA
    has also set a series of records.

    Dow futures
    YM00,
    -0.20%
    were off 94 points, or 0.3% as Asian trading got under way, while S&P 500 futures
    ES00,
    -0.22%
    fell 12 points, or 0.2%, and Nasdaq-100 futures
    NQ00,
    -0.24%
    lost 0.3%.

    Read: Stock-market rally faces Fed, tech earnings and jobs data in make-or-break week

    Away from oil, there were no signs of a significant surge in demand for instruments that traditionally serve as havens during periods of increased geopolitical tension. Futures on U.S. Treasurys
    TY00,
    +0.21%
    saw a modest rise of 0.2%, while the U.S. dollar
    DXY
    was little changed versus major rivals and gold futures
    GC00,
    +0.41%
    ticked up 0.4%.

    Escalating Middle East tensions won’t go unnoticed by traders, but probably doesn’t warrant a “solid derisking,” Weston said, particularly with investors facing a barrage of major market events in the week ahead.

    For U.S.-focused investors, the week ahead features a Federal Reserve policy meeting, earnings from tech industry heavyweights and a crucial December jobs report.

    The Middle East situation “won’t take us too far off the rates, growth track, but we have an eye on whether this escalates,” Weston said.

    —Associated Press contributed.





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  • U.S. stocks little changed in cautious trading ahead of inflation report, bank earnings

    U.S. stocks little changed in cautious trading ahead of inflation report, bank earnings

    U.S. stock indexes were edging higher on Wednesday with technology stocks looking to extend gains ahead of the December inflation report, which is expected to shed more direct light on when the Federal Reserve could dial back its two-year-long effort to tighten monetary policy and cool the economy.

    How are stock indexes trading

    • The S&P 500
      SPX
      rose 8 points, or 0.2%, to 4,764

    • The Dow Jones Industrial Average
      DJIA
      was up 38 points, or 0.1%, to 37,562

    • The Nasdaq Composite
      COMP
      gained 43 points, or 0.3%, to 14,901.

    On Tuesday, the Dow industrials fell 0.4%, to 37,525, while the S&P 500 declined 0.2%, to 4,757, and the Nasdaq Composite gained less than 0.1%, to 14,858.

    What’s driving markets

    Inflation and its impact on bond markets and the Federal Reserve’s monetary-policy trajectory are the primary focus for markets this week as investors remain on hold ahead of Thursday’s December inflation reading and high-profile corporate earnings reports on Friday, when some of the big banks will kick off the fourth-quarter 2023 earnings season.

    The S&P 500 sits less than 0.7% shy of its record high of 4796.6 touched a little over two years ago, after rallying strongly in the last few months primarily on hopes that easing inflation will allow the Fed to lower interest rates sooner and faster than the markets previously anticipated.

    The yield on the 10-year Treasury
    BX:TMUBMUSD10Y,
    the benchmark for borrowing costs, has fallen from 5% in October to 4.014% on Wednesday.

    But for this bullish narrative to play out, inflation must be seen continuing to fall back to the central bank’s 2% target. That’s why great importance is therefore being placed on the consumer-price index for December, which will be published at 8:30 a.m. Eastern on Thursday.

    See: These traders bet on surprise blip higher in key December inflation reading

    Economists forecast that annual headline CPI inflation inched up to 3.2% last month from 3.1% in November. The core reading, which strips out more volatile items like food and energy, is expected to fall from 4% to 3.8%.

    Adam Phillips, director of portfolio strategy at EP Wealth Advisors, said the CPI report may give investors enough confidence that the disinflation is likely to continue, even if the price levels are “still a very long way from anything that is considered healthy.”

    However, he cautioned that the economy has “certain factors” that are beyond the Fed’s control, such as the volatility in supply chains and growing geopolitical risks, as well as a potential resurgence in inflation, he told MarketWatch via phone on Wednesday.

    “[E]quities have remained broadly range-bound since just before Christmas, with little to push them in either direction,” said Jim Reid, strategist at Deutsche Bank.

    “That might change soon, since we’ve got the U.S. CPI print tomorrow, and then the start of earnings season on Friday, but for now at least, there’s been few headlines for investors to latch onto, just a bit of indigestion after over exuberance before New Year left markets with a little bit of an extended hangover,” Reid added.

    In U.S. economic data, the wholesale inventories declined 0.2% in November, in line with Wall Street expectations, as manufacturers continue to juggle with a fragile economy, according to the Commerce Department.

    New York Fed President John Williams will speak in White Plains, N.Y., at 3:15 p.m. Eastern time.

    Companies in focus

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  • Why stock-market investors will remain at mercy of shifting rate-cut expectations after wobbly start to 2024

    Why stock-market investors will remain at mercy of shifting rate-cut expectations after wobbly start to 2024

    Stock investors have gotten off to a wobbly start to the new year, hobbled by shifting expectations on the timing and extent of Federal Reserve interest-rate cuts in 2024.

    All three major U.S. stock indexes snapped a nine-week winning streak on Friday, after unexpectedly strong December job gains prompted traders to briefly pull back on the chances of a March rate cut. The S&P 500
    SPX
    and Nasdaq Composite
    COMP
    also failed to stage a Santa Claus Rally from the five final trading days of 2023 through the first two sessions of 2024, as questions grew about the market’s multiple rate-cuts view.

    It all adds up to a glimpse of what might be in store for investors in the year ahead. Already, the so-called “January effect,” or theory that stocks tend to rise by more now than any other month, could be put to the test by headwinds that include stalling progress on inflation. Inflation’s downward trend in recent months had given traders and investors hope that as many as six or seven quarter-percentage-point rate cuts from the Federal Reserve could be delivered in 2024, starting in March.

    Over the first handful of days in the new year, however, reality has started to sink in. For one thing, multiple rate cuts tend to be more commonly associated with recessions and not soft landings for the economy.

    Moreover, the idea that the Fed could follow through with as many rate cuts as envisioned by traders would significantly increase the probability that policymakers lose their battle against inflation, according to Mike Sanders, head of fixed income at Wisconsin-based Madison Investments, which manages $23 billion in assets. That’s because six or more rate cuts would loosen financial conditions by too much, and boost the risk of another bout of inflation that forces officials to hike again, he said.

    Minutes of the Fed’s Dec. 12-13 meeting show that policymakers were uncertain about their forecasts for rate cuts this year and failed to rule out the possibility of further rate hikes. Nonetheless, fed funds futures traders continued to cling to expectations for a big decline in borrowing costs, with the greatest likelihood now coalescing around five or six quarter-point rate cuts that total 125 or 150 basis points of easing by year-end. That’s roughly twice as much as what policymakers penciled in last month, when they voted to keep interest rates at a 22-year high of 5.25% to 5.5%.

    Source: CME FedWatch Tool, as of Jan. 5.

    Uncertainty over the path of U.S. interest rates could leave investors flat-footed once again, and damp the optimism that sent all three major stock indexes in 2023 to their best annual performances of the prior two to three years. In November, analysts at Deutsche Bank AG
    DB,
    +0.81%
    counted seven times since 2021 in which markets expected the Fed to make a dovish pivot, only to be wrong.

    Sources: Bloomberg, Deutsche Bank. Chart is as of Nov. 20, 2023.

    Financial markets have been operating with “sky-high expectations” for 2024 rate cuts, but the only way to substantiate six cuts this year is with an “abrupt and sharp downturn in the economy,” said Todd Thompson, managing director and portfolio co-manager at Reams Asset Management in Indianapolis, which oversees $27 billion.

    Heading into 2024, euphoria over the prospect of lower borrowing costs produced what Thompson calls “an alarming, everything rally,” which he says leaves equities and high-yield corporate debt vulnerable to pullbacks between now and the next six months. Beyond that period, however, “the trend is likely to be lower rates as the economy finally succumbs to tightening conditions at the same time inflation continues to recede.”

    The coming week brings the next major U.S. inflation update, with December’s consumer price index report released on Thursday. The annual headline rate of inflation from CPI has slowed to 3.1% in November from a peak of 9.1% in June 2022. In addition, the core rate from the Fed’s favorite inflation gauge, known as the PCE, has eased to 3.2% year-on-year in November from a 4.2% annual rate in July.

    The Fed needs to keep interest rates higher because of all the uncertainty around inflation’s most likely path forward, and the U.S. labor market “won’t degrade fast enough in the first quarter to justify a first rate cut in March,” according to Sanders of Madison Investments.

    Rate-cut expectations are “going to be the issue for 2024, and a lot of it is going to be revolving around inflation getting back to that 2% target,” Sanders said via phone. “We think somewhere between 75 and 125 basis points of rate cuts make sense, and that the first move is more of a June-type of event. We don’t think it makes sense to have a March rate cut unless the labor market falls off a cliff.”

    History shows that Treasury yields tend to fall in the months leading up to the first rate cut of a Fed easing cycle. However, that isn’t happening right now. Yields on government debt have been on an upward trend since the end of December, with 2-
    BX:TMUBMUSD02Y,
    10-
    BX:TMUBMUSD10Y,
    and 30-year yields
    BX:TMUBMUSD30Y
    ending Friday at their highest levels in more than two to three weeks.

    See also: What history says about stocks and the bond market ahead of a first Fed rate cut

    While financial markets generally tend to be efficient processors of information, they “haven’t been very accurate in terms of pricing in rate cuts” this time, said Lawrence Gillum, the Charlotte, North Carolina-based chief fixed-income strategist for broker-dealer for LPL Financial. He said the big risk for 2024 is if financial conditions ease too much and the Fed declares victory on inflation too soon, which could reignite price pressures in a manner reminiscent of the 1970s period under former Fed Chairman Arthur Burns.

    “We think rate-cut expectations have gone too far too fast, and that the backup in yields we are seeing right now is the market acknowledging that maybe rate cuts are not going to be as aggressive as what was priced in,” Gillum said via phone.

    December’s CPI report on Thursday is the data highlight of the week ahead.

    On Monday, consumer-credit data for November is set to be released, followed the next day by trade-deficit figures for the same month.

    Wednesday brings the wholesale-inventories report for November and remarks by New York Fed President John Williams.

    Initial weekly jobless claims are released on Thursday. On Friday, the producer price index for December comes out.

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  • Apple's stock falls after 'sell' call from Barclays

    Apple's stock falls after 'sell' call from Barclays

    Shares of Apple Inc. are starting 2024 with a selloff, after Barclays analyst Tim Long said it was “time for a breather,” citing weak hardware sales as iPhone 15 demand disappoints.

    “We are still picking up weakness on iPhone volumes and mix, as well as a lack of bounce-back in Macs, iPads and wearables,” Long wrote in a note to clients. “The biggest takeaway from the latest checks is incrementally worse [iPhone] 15 data points out of China, together with developed markets remaining soft.”

    He cut his rating on the stock
    AAPL,
    -0.54%
    to underweight from neutral, and trimmed his price target to $160 from $161. The new target implies about 17% downside from Friday’s closing price of $192.53.

    The stock slumped 1.8% in premarket trading Tuesday, putting it on track to open at a seven-week low.

    Long said iPhone 15 sales have been “lackluster” and believes Phone 16 sales will be the same, as he expects other hardware categories to remain weak. He said it’s time for investors to take a “breather” on the stock, as he doesn’t think it can keep rallying in the face of downbeat demand data, like it did in 2023.

    “We expect reversion after a year when most quarters were missed and the stock outperformed,” Long wrote.

    He expects Apple to report “in-line” fiscal first-quarter results, which runs through December, but he trimmed his second-quarter to further below consensus expectations.

    He now expects earnings per share and revenue for the quarter through March to be down in the low-single-digit percentage range, while the FactSet consensus calls for EPS to be up 2.6% at $1.57 and revenue to rise 1.1% to $95.8 billion.

    Apple’s stock surged 48.2% in 2023, or almost double the S&P 500 index’s
    SPX
    gain of 24.2%, even as revenue for each quarter of fiscal 2023 through September was below that of a year ago.

    Long is now one of just four of the 44 analysts surveyed by FactSet who are bearish on Apple’s stock, while 27 (61%) are bullish and 13 are neutral. His $160 price target is 19.2% below the average target of $197.92.

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  • So much for 'the January effect': Here are five things that could interrupt the U.S. stock market rally in early 2024.

    So much for 'the January effect': Here are five things that could interrupt the U.S. stock market rally in early 2024.

    U.S. stocks capped off a wild 2023 with a two-month sprint that has carried the Dow to record highs and the S&P 500 index to within a whisker of a similar milestone.

    But after such a powerful advance, some portfolio managers and strategists are concerned that the market could suffer its own post-New Year’s Eve hangover once the calendar turns to January 2024.

    Instead of providing a tailwind for the market, several who spoke with MarketWatch worried that the “January effect” might work in reverse as investors scramble to lock in gains after the S&P 500 rose 24% in 2023, according to FactSet data.

    “Any time you have a big burst like that, I think you’re vulnerable to some profit-taking,” said James St. Aubin, chief investment strategist at Sierra Investment Management, during an interview with MarketWatch. “It wouldn’t surprise anybody to see the market cool off a bit after a strong run.”

    From high valuations, to bullish sentiment indicators, to economic data, to geopolitics and beyond, here are a few things that could trip up the market in January.

    U.S. stocks are already overbought

    A technical gauge that’s widely followed by Wall Street portfolio managers and technical analysts has been screaming that U.S. stocks are overbought for a month.

    The 14-day relative strength index on the S&P 500, a momentum indicator that’s supposed to help put the magnitude of the index’s latest moves into context, climbed as high as 82.4 on Dec. 19, its highest since 2020, according to FactSet data.

    FACTSET

    Although the RSI has since pulled back, it continues to hover around 70, seen by analysts as the threshold for when something can be considered “overbought.”

    Sentiment has swung from extremely bearish to extremely bullish

    In the span of just two months, investors have gone from incredibly bearish to incredibly bullish, according to the American Association of Individual Investors’ weekly sentiment survey.

    That should give investors pause, since the gauge is seen as a reliable counter-indicator. When sentiment becomes stretched in either direction, it can signal that the market is about to turn. Investors say that is what happened back in July, and also in October after the S&P 500 touched its 2022 bear-market nadir.

    RAYMOND JAMES

    According to the AAII survey published ahead of the Christmas holiday, nearly 53% of respondents said they were bullish, the highest since April 2021. That number came down a bit this week, but it remains high relative to levels from October.

    The VIX is extremely low

    Wall Street’s favorite “fear gauge” is giving the all-clear. To some, that’s reason enough to worry.

    The Cboe Volatility Index
    VIX,
    better known as the Vix, measures implied volatility, or how volatile traders’ expect the S&P 500 to be over the coming month based on trading activity in options contracts tied to the index.

    In December, the Vix dropped below 12 for the first time since before the advent of the COVID-19 pandemic.

    Nancy Tengler, CEO and CIO of Laffer Tengler Investments, said in emailed commentary that she is keeping a close eye on the Vix. Once volatility starts to climb, investors should consider taking some chips off the table.

    Progress on inflation could stall in January

    Some investors are already anxious about the next U.S. inflation report, due Jan. 11.

    The Cleveland Fed’s inflation nowcast has core CPI rising more than 0.3% in December. If this proves accurate, it would be the hottest inflation reading since May.

    And even if core inflation comes in slightly cooler, stocks might not greet it with the same enthusiasm they have shown in the past.

    “U.S. CPI for December will hopefully continue to show a disinflationary trend, although the question is: can we keep rallying on this same dynamic?” said Larry Adam, chief investment officer at Raymond James, in emailed comments.

    Earnings season could disappoint

    For three straight quarters beginning with the final three months of 2022, the largest U.S. companies saw their earnings shrink on a year-over-year basis.

    This “earnings recession” finally came to an end in the third quarter, but the conundrum that investors now face is whether companies can manage to satisfy Wall Street’s lofty expectations for 2024.

    The artificial-intelligence software boom and the fact that the U.S. economy avoided a recession in 2023 has helped boost analysts’ confidence about earnings, strategists said.

    According to the bottom-up consensus estimate from FactSet, analysts expect S&P 500 aggregate earnings to increase by 11.7% for the calendar year 2024.

    “Markets have been baking in this 11.7% earnings growth figure for a while now. That’s a lot of optimism,” Goldman said during an interview with MarketWatch.

    And that’s not all…

    To be sure, this list is hardly comprehensive.

    Politics and geopolitics also came up a lot in discussions with analysts. Investing professionals cited Taiwan’s upcoming presidential election, another looming federal debt-ceiling showdown in the U.S., the beginning of the 2024 Republican presidential primaries, the ongoing conflicts in Gaza and Ukraine, and more as potential threats to market calm.

    Some expressed concern that the Treasury could spark a selloff in bonds and stocks with its next quarterly refunding announcement in early 2024.

    But in the view of Cetera’s Goldman, a dynamic that Wall Street traders call it “buy the rumor, sell the news” could represent a bigger threat.

    The thinking works like this: investors have already front-run aggressive Federal Reserve interest rate cuts. So, if the Fed delivers, the rush to take profits could drive stocks lower instead of propelling the main U.S. indexes to new highs. Put another way, many strategists believe investors have already priced in pretty aggressive Fed rate cuts.

    So unless the central bank finds a way to deliver something even greater than what Wall Street is expecting, the main U.S. equity indexes could struggle to continue their advance.

    “Markets are already buying the rumor that we’re going to have a better 2024, that the Fed is going to cut rates, that breadth is going to widen,” Goldman said.

    “Maybe we’re already seeing that priced in.”

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  • Dow lands second-highest close ever as stocks build on eight-week winning streak

    Dow lands second-highest close ever as stocks build on eight-week winning streak

    U.S. stocks closed higher Tuesday, building on a streak of eight straight weekly gains as the final, holiday-shortened week of 2023 got under way.

    What happened

    On Friday, stocks finished a choppy pre-holiday trading session mostly higher, with the S&P 500, Dow and Nasdaq each scoring an eighth straight weekly gain. The S&P 500 finished 0.9% away from its record close of 4,796.56, set on Jan. 3, 2022.

    Read:…

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  • Manchester United stock climbs after Jim Ratcliffe clinches 25% stake

    Manchester United stock climbs after Jim Ratcliffe clinches 25% stake

    Shares of Manchester United Ltd. MANU climbed 4.7% in premarket trades Tuesday after British billionaire Sir Jim Ratcliffe clinched his 25% minority stake in the iconic English soccer club. Manchester United announced the agreement on Christmas Eve, with Ratcliffe acquiring 25% of the Class B shares held by the American Glazer family, which owns the club, and up to 25% of Class A shares. The Glazers and Class A shareholders will receive the same price of $33 a share. The deal values the club at $5.4 billion, falling below initial hopes of $6 billion, according to Bloomberg. Ratcliffe will also provide an additional $300…

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  • The Magnificent 7 dominated 2023. Will the rest of the stock market soar in 2024?

    The Magnificent 7 dominated 2023. Will the rest of the stock market soar in 2024?

    2023 will go down in history for the start of a new bull market, albeit a strange one.

    Despite some year-end catch-up by the rest of the S&P 500 index, megacap technology stocks, characterized by the so-called Magnificent Seven, have dominated gains for the large-cap benchmark SPX, which is up 23.8% for the year through Friday’s close.

    That’s…

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  • 'Santa Claus' rally time for stock market? Why investors should dial back their expectations for this seasonal year-end gift.

    'Santa Claus' rally time for stock market? Why investors should dial back their expectations for this seasonal year-end gift.

    Almost as predictable as the big jolly man himself, many on Wall Street are eagerly waiting for the so-called Santa Claus rally to further fuel stock-market gains that have already put investors in a holiday mood.

    As defined by the Stock Trader’s Almanac, the Santa Claus rally refers to the stock market’s tendency to rise during the last five trading days of the current calendar year and the first two trading sessions of the new year. Friday marks the start of the period, which will run through Wednesday, January 3 this time around. 

    If recent history holds, then stocks are set to have a good run in the next six trading days as Santa Claus tends to come to Wall Street almost every year. Since 1950, the Santa rally has boosted the S&P 500
    SPX
    by an average of 1.3% over the seven trading-day range. The benchmark large-cap index closed higher 78% of the Santa Claus trading window in the past 75 years, and gained during that time for the past seven years, according to Dow Jones Market Data. 

    This time, though, the stock market has already been in a party mood even ahead of Christmas, with some market watchers, including Yardeni Research’s Ed Yardeni thinking the Santa rally has come “ahead of schedule.” 

    U.S. stocks are sitting on hefty gains at the close of a rollercoaster year. The S&P 500 jumped 4.3% in December, just 0.7% shy of its record set nearly two years ago amid growing optimism that the Federal Reserve may begin cutting interest rates as early as the first half of 2024, a fervor that policymakers attempted to rein in since last week’s FOMC meeting. 

    Opinion: Santa Claus is coming to town and bringing presents for your stock portfolio

    But a relentless rally in the run-up to the official Santa rally indicates some of Santa’s largesse may have already been delivered, said Pete A. Biebel, senior vice president and senior investment strategist at Benjamin F. Edwards. 

    “I do think that the market is a little bit extended, so our expectations for this traditional Santa rally period should be dialed back a bit,” Biebel told MarketWatch on Friday. 

    Biebel points to the midweek dip on Wednesday which made the Dow Jones Industrial Average
    DJIA
    down 475.92 points, or 1.3%, for its biggest one-day percentage decline since October. The blue-chip index ended a streak of five straight record finishes as a strong year-end rally briefly lost momentum, according to Dow Jones Market Data.

    While there wasn’t any clear fundamental trigger for the selloff, some Wall Street analysts think a surge in trading of zero-day to expiry options (0DTE) should be blamed for the pullback. Others said the derivatives that have exploded in popularity this year were just one piece of the puzzle, as overbought technical conditions and low year-end trading volumes also were cited as likely factors. 

    The “air pocket” for stocks on Wednesday was an omen or a red flag that the markets have that potential for steep drawdowns, Biebel said. “It doesn’t mean it has to happen, but it’s a warning that the market is not as rosy as it seems — there is potential trouble below the surface.” 

    See: Chasing the Santa rally? Look out below!

    However, some analysts suggest investors not to bet against the seasonal momentum, especially during the bull market with a strong uptrend which took the three indexes off their October lows, said Adam Turnquist, chief technical strategist at LPL Financial. 

    “Stocks are overbought, but the market can stay overbought for longer than most people expect, especially at this stage of a bull market,” Turnquist told MarketWatch via phone. 

    Meanwhile, stock-market returns during this time frame have historically correlated closely to returns in January and the subsequent year. Since 1950, the S&P 500 has generated an average forward annual return of 10.4% when Santa comes to town. That is well above the return when Santa doesn’t show up, which is only around 4%, according to data compiled by LPL Financial. 

    “There’s the potential [for a Santa rally] but we’ll likely see a little bit of a hangover as well as a reset in January or February from these overbought conditions,” he added. 

    Time will tell if investors receive the seasonal presents that history promises in 2023, or if an overly extended rally will let the Grinch steal Christmas. After all, Santa rally is more of a “curiosity” than a phenomenon, said Biebel. 

    U.S. stocks were edging higher on Friday, with three major indexes on pace for their eighth consecutive positive week. The Dow Jones Industrial Average has risen 0.4%, while the S&P 500 was up 0.9% and the Nasdaq Composite
    COMP
    has jumped 1.3% this week, according to FactSet data.

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  • Why the 60-40 portfolio is poised to make a comeback in 2024

    Why the 60-40 portfolio is poised to make a comeback in 2024

    Speculation that the 60-40 portfolio may have outlived its usefulness has been rife on Wall Street after two years of lackluster performance.

    But as the yield on the 10-year Treasury note
    BX:TMUBMUSD10Y
    hovers around 4%, some strategists say the case for allocating a healthy portion of one’s portfolio to bonds hasn’t been this compelling in a long time.

    And with the Federal Reserve penciling three interest-rate cuts next year, investors who seize the opportunity to buy more bonds at current levels could reap rewards for years to come, as waning inflation helps to normalize the relationship between stocks and bonds, restoring bonds’ status as a helpful portfolio hedge during tumultuous times, market strategists and portfolio managers told MarketWatch.

    Add to this is the notion that equity valuations are looking stretched after a stock-market rebound that took many on Wall Street by surprise, and the case for diversification grows even stronger, according to Michael Lebowitz, a portfolio manager at RIA Advisors, who told MarketWatch he has recently increased his allocation to bonds.

    “The biggest difference between 2024 and years past is you can earn 4% on a Treasury bond, which isn’t that far off from the projected return in U.S. stocks right now,” Lebowitz said. “We’re adding bonds to our portfolio because we think yields are going to continue to come down over the next three to six months.”

    See: Case for traditional 60-40 mix of stocks and bonds strengthens amid higher rates, according to Vanguard’s 2024 outlook

    Does 60-40 still make sense?

    Since modern portfolio theory was first developed in the early 1950s, the 60-40 portfolio has been a staple of financial advisers’ advice to their clients.

    The notion that investors should favor diversified portfolios of stocks and bonds is based on a simple principle: bonds’ steady cash flows and tendency to appreciate when stocks are sliding makes them a useful offset for short-term losses in an equity portfolio, helping to mitigate the risks for investors saving for retirement.

    However, market performance since the financial crisis has slowly undermined this notion. The bond-buying programs launched by the Fed and other central banks following the 2008 financial crisis caused bond prices to appreciate, while driving yields to rock-bottom levels, muting total returns relative to stocks.

    At the same time, the flood of easy money helped drive a decadelong equity bull market that began in 2009 and didn’t end until the advent of COVID-19 in early 2020, FactSet data show.

    More recently, bonds failed to offset losses in stocks in 2022. And in 2023, U.S. equity benchmarks such as the S&P 500
    SPX
    have still outperformed U.S. bond-market benchmarks, despite bonds offering their most attractive yields in years, according to Dow Jones Market Data.

    The Bloomberg U.S. Aggregate Total Return Index
    AGG
    has returned 4.6% year-to-date, according to Dow Jones data, compared with a more than 25% return for the S&P 500 when dividends are included.

    But this could be about to change, according to analysts at Deutsche Bank. The team found that, going back decades, the relationship between stocks and bonds has tended to normalize once inflation has slowed to an annual rate of 3% based on the CPI Index.

    DEUTSCHE BANK

    The CPI Index for November had core inflation running at 4% year over year, a level it has been stuck at for the past several months. The Fed’s projections have inflation continuing to wane in 2024.

    Staff economists at the central bank expect the core PCE Price Index, which the Fed prefers to the CPI gauge, to slow to 2.4% by the end of next year. If that comes to pass, investors should see the inverse relationship between stocks and bonds return, according to Lebowitz and others.

    A window of opportunity

    The dismal performance of 60-40 portfolios over the past two years has inspired a wave of Wall Street think pieces questioning whether it still makes sense for contemporary investors.

    A team of academics led by Aizhan Anarkulova at Emory University in November presented findings showing that over a lifetime, investors would have reaped higher returns via a portfolio consisting of 100% exposure to stocks, split between foreign and domestic markets.

    But fixed-income strategists at Deutsche and Goldman Sachs Group, as well as others on Wall Street, say investors wouldn’t be well-served by excluding bonds from their portfolio, particularly with yields at current levels.

    Rob Haworth, senior investment strategy director at U.S. Bank’s wealth-management business, says investors now have an opportunity to lock in attractive returns for decades to come, ensuring that the bonds in their portfolios will, at the very least, deliver a steady stream of income that would reduce any losses in stocks or declines in bond prices.

    There is, however, one catch: with the Fed expected to cut interest rates, that window could quickly close.

    “The problem is, for investors in cash, the Fed’s just told you that is not going to last. I think that means it is time to start thinking about your long-term plan,” Haworth said.

    Read: Fed could be the Grinch who ‘stole’ cash earning 5%. What a Powell pivot means for investors.

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  • U.S. stocks struggle to resume climb as Dow edges higher after notching 5th straight record close

    U.S. stocks struggle to resume climb as Dow edges higher after notching 5th straight record close

    U.S. stock indexes were higher on Wednesday as Wall Street tried to build on their year-end rally with a fresh record in sight for the S&P 500 index.

    How are stock indexes trading

    • The S&P 500
      SPX
      was inching up 3 points, leaving it nearly flat, at 4,771

    • The Dow Jones Industrial Average
      DJIA
      was rising 15 points, leaving it nearly flat, at 37,570

    • The Nasdaq Composite
      COMP
      was edging up 35 points, or 0.2%, to 15,038

    On Tuesday, the Dow booked a fifth straight record close, while the S&P 500 rose and the Nasdaq extended its winning streak to a ninth day.

    What’s driving markets

    U.S. stocks were edging higher on Wednesday with the S&P 500 less than 1% shy of the all-time closing high of 4796.56 it recorded at the start of January 2022, while the Dow industrials and Nasdaq were struggling to extend their nine consecutive daily gains.

    The Wall Street large-cap benchmark S&P 500 has jumped 24.3% this year, partially powered by hopes that the U.S. economy has not been too badly damaged by the Federal Reserve’s ratcheting up of interest rates to cool inflation.

    The latest leg of the rally reflects hopes that with inflation back down to 3.1%, the central bank will begin quickly trimming borrowing costs next year. Not even an concerted effort by Fed officials to counter the market’s rate-cut optimism has damped trader’s ardor.

    This dismissal of less-dovish Fedspeak has left some observers bemused.

    “Investors are dreaming of aggressive rate cuts in an environment of strong economic growth, and that is not the right recipe for easing inflation and keeping it sufficiently low,” Ipek Ozkardeskaya, senior analyst at Swissquote Bank. “The robust economic data and high earnings expectations are not compatible with a dovish Fed,” she said.

    See: Why the 60-40 portfolio is poised to make a comeback in 2024

    Perhaps the current bullishness is also reflective of seasonal trends, with optimism about a festive bounce underpinning stocks. The “Santa Claus Rally” period stretches from the last five trading days of the year and first two trading days of the new year, according to the Stock Trader’s Almanac.

    Since 1950, the S&P 500 has averaged a gain of 1.32% and closed higher 78.1% of the time over that period, according to Dow Jones Market Data.

    SOURCE: DOW JONES MARKET DATA

    In U.S. economic data, existing-home sales rose 0.8% in November to 3.82 million, the National Association of Realtors said on Wednesday. Sales of previously owned homes unexpectedly inched up last month, snapping a five-month slump as easing mortgage rates encouraged some U.S. homebuyers.

    Meanwhile, U.S. consumer confidence index rose to 110 in December, up from a downwardly revised 101 in the previous month, the Conference Board said Wednesday.

    “The consumer is feeling pretty well as rates move lower, employers add to their payroll, and income expectations improve,” said Jeffrey J. Roach, chief economist at LPL Financial. “So far, investors have a green light as they merge into the new year.”

    That said, investors will continue seeking guidance from more economic data due later this week that may provide more clarity on the Fed’s interest-rate path in 2024. A revision of third-quarter GDP print is expected on Thursday morning, followed by Friday’s personal consumption expenditure (PCE) inflation report — the Fed’s preferred inflation gauge.

    Companies in focus

    • Shares of Alphabet Inc.
      GOOGL,
      +2.82%
      were jumping 3.3% on Wednesday following a report that said its Google unit plans to reorganize a large part of its advertising sales unit.

    • Shares of FedEx Corp.
      FDX,
      -10.56%
      were slumping 11% after the package-delivery giant trimmed its full-year sales forecast, amid continued concerns about subdued shipping demand through the peak holiday season.

    • Shares of General Mills Inc. 
      GIS,
      -2.26%
       were off 2.8% after the consumer-foods company reported fiscal second-quarter profit that beat expectations, while revenue missed and the full-year outlook as consumers continue “stronger-than-expected value-seeking behaviors.” 

    • Toro Corp.’s stock 
      TORO,
      -2.15%
      was down 2.2% despite the lawn mower company’s fourth-quarter profit and revenue beat analyst estimates. 

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  • How Fed rate moves could impact different sectors of the stock market in 2024

    How Fed rate moves could impact different sectors of the stock market in 2024

    Wall Street seems to agree that U.S. stocks will climb to fresh record highs in 2024. But the most important question for investors may still be the direction and speed of interest-rate moves. 

    Rate-sensitive groups of stocks with lackluster fundamentals, such as financials, utilities, staples, “may be able to outperform, at least early in the year,” if one expects interest rates “to come down quickly and permanently,” said Nicholas Colas, co-founder of DataTrek Research.

    But if “one expects a bumpier ride on the rate front,” then stronger groups, like technology and tech-adjacent sectors “should do better,” Colas said in a Monday client note.

    The S&P 500’s utilities, consumer staples and energy sectors have been the worst performing parts of the large-cap benchmark index so far in 2023, according to FactSet data.

    With an over 10% year-to-date decline, the S&P 500’s utilities sector
    XX:SP500.55
    has significantly underperformed the broader index’s
    SPX
    23.6% advance.

    The S&P 500’s best performing information technology sector
    XX:SP500.45
    was up 56.5% for the same period. But its consumer staples
    XX:SP500.30
    and energy
    XX:SP500.10
    sectors have slumped by 2.6% and 4.1% so far this year, respectively, according to FactSet data.

    Utilities and consumer staples are usually considered defensive investment sectors, or “bond proxies,” because they can help investors minimize stock-market losses in any economic downturn. Companies in these sectors usually provide electricity, water and gas, or they sell products and services that consumers regularly purchase, regardless of economic conditions.

    However, utilities and consumer staples stocks were under a lot of pressure this year. A relentless climb in U.S. Treasury yields in October made defensive stocks less attractive compared with government-issued bonds, or money-market funds offering 5%, especially as the economy remained strong, pushing recession expectations out further.

    Colas expects “weaker groups” to catch a stronger tailwind if rates continue to decline.

    See: Markets are declaring victory over inflation for Powell, and that has some economists worried

    The yield on the 10-year Treasury
    BX:TMUBMUSD10Y
    last week booked its biggest weekly decline in a year after the Federal Reserve signaled a pivot to rate cuts in 2024, which helped the S&P 500 score its longest weekly winning streak since 2017.

    The S&P 500’s utilities and consumer staples sectors rose 0.9% and 1.6% last week, respectively, compared with the information technology sector’s 2.5% advance and communication services sector’s
    XX:SP500.50
    0.1% decline, according to FactSet data.

    Earnings growth expectations for each S&P 500 sector in 2024 are indicated below. Sectors to the left of the dotted black line are expected to show better bottom-line results than the S&P 500 as a whole, while those to the right are expected to show weaker earnings growth.

    SOURCE: FACTSET, DATATREK RESEARCH

    Wall Street expects next year to see 11.5% growth in S&P 500 earnings-per-share (EPS), to $244, and 5.5% revenue growth, according to FactSet data.

    However, there is a wide dispersion across S&P 500 sectors. The range goes from 2% revenue and 3% earnings growth for the energy sector, to 9% revenue and 17% earnings growth for the information technology sector, according to data compiled by DataTrek Research.

    “Playing fundamentally weaker sectors therefore assumes even more good news on the rate front,” Colas said, adding that it still is riskier than sticking with “tried and true groups” like technology.

    Moreover, sectors such as utilities, financials and consumer staples are not expected to show 10% earnings growth next year, while health care and big tech-dominated groups like communication services, technology and consumer discretionary, are expected to show much better than average revenue and earnings growth in 2024, said Colas, citing FactSet data. 

    U.S. stocks closed higher on Monday, with the Dow Jones Industrial Average
    DJIA
    building on its all-time high set last week. The S&P 500 gained 0.5% and the Dow Industrials closed fractionally higher. The Nasdaq Composite
    COMP
    finished up 0.6%, according to FactSet data.

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  • Fed could be the Grinch who 'stole' cash earning 5%. What a Powell pivot means for investors.

    Fed could be the Grinch who 'stole' cash earning 5%. What a Powell pivot means for investors.

    Yields on 3-month
    BX:TMUBMUSD03M
    and 6-month
    BX:TMUBMUSD06M
    Treasury bills have been seeing yields north of 5% since March when Silicon Valley Bank’s collapse ignited fears of a broader instability in the U.S. banking sector from rapid-fire Fed rate hikes.

    Six months later, the Fed, in its final meeting of the year, opted to keep its policy rate unchanged at 5.25% to 5.5%, a 22-year high, but Powell also finally signaled that enough was likely enough, and that a policy pivot to interest rate cuts was likely next year.

    Importantly, the central bank chair also said he doesn’t want to make the mistake of keeping borrowing costs too high for too long. Powell’s comments helped lift the Dow Jones Industrial Average
    DJIA
    above 37,000 for the first time ever on Wednesday, while the blue-chip index on Friday scored a third record close in a row.

    “People were really shocked by Powell’s comments,” said Robert Tipp, chief investment strategist, at PGIM Fixed Income. Rather than dampen rate-cut exuberance building in markets, Powell instead opened the door to rate cuts by midyear, he said.

    New York Fed President John Williams on Friday tried to temper speculation about rate cuts, but as Tipp argued, Williams also affirmed the central bank’s new “dot plot” reflecting a path to lower rates.

    “Eventually, you end up with a lower fed-funds rate,” Tipp said in an interview. The risk is that cuts come suddenly, and can erase 5% yields on T-bills, money-market funds and other “cash-like” investments in the blink of an eye.

    Swift pace of Fed cuts

    When the Fed cut rates in the past 30 years it has been swift about it, often bringing them down quickly.

    Fed rate-cutting cycles since the ’90s trace the sharp pullback also seen in 3-month T-bill rates, as shown below. They fell to about 1% from 6.5% after the early 2000 dot-com stock bust. They also dropped to almost zero from 5% in the teeth of the global financial crisis in 2008, and raced back down to a bottom during the COVID crisis in 2020.

    Rates on 3-month Treasury bills dropped suddenly in past Fed rate-cutting cycles


    FRED data

    “I don’t think we are moving, in any way, back to a zero interest-rate world,” said Tim Horan, chief investment officer fixed income at Chilton Trust. “We are going to still be in a world where real interest rates matter.”

    Burt Horan also said the market has reacted to Powell’s pivot signal by “partying on,” pointing to stocks that were back to record territory and benchmark 10-year Treasury yield’s
    BX:TMUBMUSD10Y
    that has dropped from a 5% peak in October to 3.927% Friday, the lowest yield in about five months.

    “The question now, in my mind,” Horan said, is how does the Fed orchestrate a pivot to rate cuts if financial conditions continue to loosen meanwhile.

    “When they begin, the are going to continue with rate cuts,” said Horan, a former Fed staffer. With that, he expects the Fed to remain very cautious before pulling the trigger on the first cut of the cycle.

    “What we are witnessing,” he said, “is a repositioning for that.”

    Pivoting on the pivot

    The most recent data for money-market funds shows a shift, even if temporary, out of “cash-like” assets.

    The rush into money-market funds, which continued to attract record levels of assets this year after the failure of Silicon Valley Bank, fell in the past week by about $11.6 billion to roughly $5.9 trillion through Dec. 13, according to the Investment Company Institute.

    Investors also pulled about $2.6 billion out of short and intermediate government and Treasury fixed income exchange-traded funds in the past week, according to the latest LSEG Lipper data.

    Tipp at PGIM Fixed Income said he expects to see another “ping pong” year in long-term yields, akin to the volatility of 2023, with the 10-year yield likely to hinge on economic data, and what it means for the Fed as it works on the last leg of getting inflation down to its 2% annual target.

    “The big driver in bonds is going to be the yield,” Tipp said. “If you are extending duration in bonds, you have a lot more assurance of earning an income stream over people who stay in cash.”

    Molly McGown, U.S. rates strategist at TD Securities, said that economic data will continue to be a driving force in signaling if the Fed’s first rate cut of this cycle happens sooner or later.

    With that backdrop, she expects next Friday’s reading of the personal-consumption expenditures price index, or PCE, for November to be a focus for markets, especially with Wall Street likely to be more sparsely staffed in the final week before the Christmas holiday.

    The PCE is the Fed’s preferred inflation gauge, and it eased to a 3% annual rate in October from 3.4% a month before, but still sits above the Fed’s 2% annual target.

    “Our view is that the Fed will hold rates at these levels in first half of 2024, before starting cutting rates in second half and 2025,” said Sid Vaidya, U.S. Wealth Chief Investment Strategist at TD Wealth.

    U.S. housing data due on Monday, Tuesday and Wednesday of next week also will be a focus for investors, particularly with 30-year fixed mortgage rate falling below 7% for the first time since August.

    The major U.S. stock indexes logged a seventh straight week of gains. The Dow advanced 2.9% for the week, while the S&P 500
    SPX
    gained 2.5%, ending 1.6% away from its Jan. 3, 2022 record close, according to Dow Jones Market Data.

    The Nasdaq Composite Index
    COMP
    advanced 2.9% for the week and the small-cap Russell 2000 index
    RUT
    outperformed, gaining 5.6% for the week.

    Read: Russell 2000 on pace for best month versus S&P 500 in nearly 3 years

    Year Ahead: The VIX says stocks are ‘reliably in a bull market’ heading into 2024. Here’s how to read it.

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  • This is what we can expect to see from meme stocks in 2024

    This is what we can expect to see from meme stocks in 2024

    It may be a couple of years since the meme-stock feeding frenzy hit its heights, but we’re still seeing occasional bursts of meme-like activity in number of stocks.

    No discussion of meme stocks would be complete without OG AMC Entertainment Holdings Inc.
    AMC,
    -0.89%    .
    But while the movie theater chain and original meme stock darling still grabs plenty of attention, it no longer fits the bill of a meme stock, according to Alicia Reese, VP of equity research at Wedbush. “AMC has seemingly lost its meme status, its share price having come crashing back down to earth over the past several months, particularly since its APE fold-in and reverse stock split,” she said. “AMC is now trading at a more normalized valuation, even if still at the high-end of its pre-meme historic range.”

    AMC’s shares ended Friday’s session at $6.65, a far cry from their high of $393.63 on June 2, 2021, during the meme-stock frenzy.

    Related: AMC’s stock falls more than 5% after company completes $350 million equity offering

    “AMC’s premium valuation here is driven in part by a sub-section of the shareholders it gained during its meme stage, who have remained loyal to the company and have long claimed to be AMC shareholders for life,” Reese added. “AMC shed all the rest of its meme-era shareholders and are now left with the lifers, along with some institutional shareholders now that valuation has come back to a more normalized range.”

    The analyst thinks that in 2024, AMC will continue to issue pre-authorized shares to pay down its high-debt balance, as evidenced by the $350 million equity offering completed this week. “The company is focused on right-sizing the balance sheet, while attempting to maintain strong relations with the AMC lifers still propping up the stock,” said Reese.

    Fellow original meme stock GameStop has also been in the news recently, with the company’s board of directors approving a new investment policy, which lets the company invest in equity securities, among other investments. The board also gave Chairman and Chief Executive Ryan Cohen the authority to manage the investment portfolio. The new policy was dubbed “alarming” and “inane” by Wedbush Managing Director Michael Pachter.

    “If he can invest in anything – farmland, chicken feed, cryptocurrency – that’s not in the best interests of the shareholders,” he told MarketWatch. “Heaven knows what he will do.”

    Related: GameStop’s plan to buy stocks with company cash ‘alarming’ and ‘inane,’ analyst says

    As for GameStop, the analyst describes the videogame retailer as a declining business, pointing to the company’s third-quarter revenue of $1.078 billion, which was down from $1.186 billion in the prior year’s quarter. “They are shrinking, period, and they can’t save their way to prosperity,” he added.

    The company’s new investment policy could also fuel more meme-style activity, according to Pachter, who says that Cohen’s moves will be closely watched. “He will invest in something and it will possibly become the next meme stock,” the analyst told MarketWatch. 

    Pachter pointed to Cohen’s decision in 2022 to unload his huge stake in beleaguered home goods retailer and sometime meme stock Bed Bath & Beyond Inc. just months after buying it. In August of that year Cohen sold his entire stake in Bed Bath & Beyond five months after accruing the stake in an activist campaign, amassing a profit of more than $58 million.

    Stocktwits, a social platform for investors and traders, told MarketWatch that it has seen a dedicated core audience of retail investors stick with the likes of AMC and GameStop. “Message volume and sentiment have remained elevated on the platform throughout the year, with their audiences growing temporarily around earnings or other events that create volatility,” Tom Bruni, senior writer at Stocktwits, told MarketWatch.

    Related: Small-cap Chinese stocks spark meme-like buzz

    Retail traders are still on the lookout for high-volatility situations, according to Bruni, who cited the example of Vietnamese electric vehicle stock VinFast Auto Ltd.
    VFS,
    +13.54%    ,
    which had a “crazy month” in August before crashing back down. “However, we would note that there have been fewer instances of these types of meme stocks occurring this year, and their lifespan tended to be pretty short,” he added.

    “For stocks with the ‘meme’ potential in 2024, look to beaten-down areas of the market that already have strong retail investor communities around them,” Bruni told MarketWatch. “Several that stick out are electric vehicle stocks (specifically startups), solar stocks, or anything China-related. Traders will likely be looking for stocks at the intersection of these themes, like Lucid Group ($LCID), as potential ‘powder kegs’ for volatility in 2024.”

    Shares of Lucid Group Inc.
    LCID,
    -7.20%
    are down 30.2% in 2023, compared with the S&P 500 index’s
    SPX
    gain of 22.9%.

    One thing is for sure – the social media dynamics that created the meme stock phenomenon are not going away. “Internet culture will continue to be more prevalent in markets as the world becomes more digitized and young people age into participation,” Tommy Tranfo, head of community at Stocktwits, told MarketWatch. “Crypto markets are an area where we expect to see a large concentration of this activity, particularly within the context of a crypto bull market, which will likely bring in a new wave of market participants who will skew toward the internet culture demo.”

    Related: This EV company has a bigger market cap than Ford or GM. But you may not have heard of it.

    “New crypto meme communities such as the $BONK (a dog-themed coin on the Solana blockchain) are already clear examples of this craze taking place,” he added.

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  • Chaotic 'triple witching' set for Friday, as $5.3 trillion in options expire

    Chaotic 'triple witching' set for Friday, as $5.3 trillion in options expire

    Options contracts tied to more than $5 trillion worth of stocks, exchange-traded funds and indexes are set to expire on Friday as the latest “triple witching” expiration event collides with the rebalancing of the S&P 500 and Nasdaq-100.

    The result could be a high-octane, and potentially extremely volatile, session where tens of billions of contracts and shares could change hands, market strategists said.

    According to figures from Rocky Fishman, founder of Asym500, options with a notional value of $5.3 trillion are set to expire, with the biggest slug expiring ahead of the open.

    ASYM50

    On one side, many traders will be cashing in bullish bets that are deep in the money, while some roll their positions, forcing market-makers to continue to hedge their exposure.

    At the same time, managers of index-tracking funds will need to finish adjusting their holdings before the announced index changes take effect.

    Already, trading volume has been trending higher all week. In the U.S. market, 17 billion shares changed hands on Thursday, according to Steve Sosnick, chief market strategist at Interactive Brokers, during a phone interview with MarketWatch. That is up from 10.6 billion on Tuesday.

    “I expect to see enormous volumes tomorrow in a lot of popular names,” Sosnick said.

    “Not only will this one be the largest option expiration of the year (as is typical for December), but it is currently set up to become the largest SPX option expiration in more than a decade,” Fishman said in a report shared with MarketWatch.

    Brent Kochuba, founder of Spotgamma, an options-market analytics provider, went even further during a phone interview with MarketWatch: “This might be the biggest options expiration ever.”

    ASYM50

    As markets have rallied, traders have been scooping up bullish options contracts at a record pace, according to data from Cboe Global Markets, the biggest operator of options exchanges in the U.S.

    For S&P 500-linked options, typically the most popular product, 4.8 million contracts changed hands on Thursday, according to Cboe, a new record, surpassing the previous record from Nov. 14.

    Also, total call-trading volume for all U.S. equity options exceeded 30 million contracts on Wednesday, according to Goldman Sachs Group, making it one of the busiest days for trading in bullish contracts this year.

    Aggressive call-buying over the past month has helped push the S&P 500 to just shy of its record closing high, options-market experts said. The S&P 500
    SPX
    gained 8.9% in November, its best month of 2023, and the 18th best-performing month of the past 73 years. And it has continued to climb in December, having risen 3.3% through Thursday’s close, according to FactSet data.

    Earlier this week, options strategists warned that markets might run into trouble at 4,600 on the S&P 500. They warned that a “call wall” of open-interest in bullish contracts around that level could force market makers to put the breaks on the rally.

    Instead, bullish traders blew through the call wall, pushing it higher to 4,700, said Kochuba.

    The S&P 500 closed at 4,719.55 on Thursday, its highest close since Jan. 12, 2022, according to FactSet data. The index is now sitting within 1.75 percentage points of its record closing high of 4,796.56 on Jan. 3, 2022.

    Traders’ bullishness recently helped push the Cboe Volatility Index
    VIX,
    otherwise known as Wall Street’s “fear gauge,” to multiyear lows, according to FactSet data.

    To be sure, it isn’t just S&P 500 options and contracts tied to popular stocks like Tesla Inc.
    TSLA,
    +4.91%
    seeing explosive volume: Calls tied to the iShares Russell 2000 ETF
    IWM,
    which tracks the small-cap Russell 2000, hit 1.35 million contracts, the third-highest ever, according to Goldman. Activity in options contracts linked to small-cap stock indexes has surged since late October.

    Heavy call buying has pushed the put-call skew for S&P 500 options to its lowest level in a year, according to data from Goldman Sachs Group.

    This shows that investors have been scrambling to buy bullish contracts, while largely shunning bearish ones, as stocks marched higher. Goldman analysts described Friday as “the last major liquidity event of the year” in a note to clients obtained by MarketWatch.

    GOLDMAN SACHS

    “Triple Witching” days happen once a quarter. They are thusly named because options tied to single stocks, ETFs and indexes will expire, alongside index-tracking futures contracts. Options-market experts say they are typically associated with more intraday swings and higher trading volume.

    Making things even more interesting is the fact that the quarterly rebalancing of the S&P 500 and Nasdaq-100 is due to take effect after markets close on Friday.

    Normally routine, this quarter’s rebalancing is drawing outsize attention following an extremely rare ad hoc rebalancing over the summer to rein in the influence of megacap stocks in the Nasdaq-100.

    Earlier this month, Standard & Poor’s announced its rebalancing plans, which included reducing the weighting of two Magnificent Seven stocks, Apple Inc.
    AAPL,
    +0.08%
    and Alphabet Inc.
    GOOG,
    -0.57%

    GOOGL,
    -0.48%    .
    At the same time, Amazon.com Inc.
    AMZN,
    -0.95%    ,
    which is also part of the Mag 7, will see its weighting increased. Meanwhile, three companies will join the index, including Uber Inc.
    UBER,
    +0.86%    ,
    while shares of three other companies depart.

    Kochuba believes Friday’s expiration could remove the last barrier holding stocks back from rocketing to record highs before the end of the year.

    “After OpEx, markets will be able to move more freely,” Kochuba said.

    Garrett DeSimone of OptionMetrics cautioned that investors shouldn’t place too much weight on options-market activity and other technical factors.

    “At the end of the day, macro trumps everything,” he said during an interview with MarketWatch.

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  • S&P 500's year-end rally lifts 51 stocks to a record close

    S&P 500's year-end rally lifts 51 stocks to a record close

    It has been a record day for 10% of the S&P 500.

    A group of 51 stocks in the benchmark equity index swept to record finishes on Tuesday, the most since April 20, 2022, according to a tally from Dow Jones Market Data.

    It was a record day for 51 stocks in the S&P 500.


    Dow Jones Market Data

    Stocks that logged a record close on Tuesday included Allstate Corp
    ALL,
    +0.90%    ,
    Costco Wholesale
    COST,
    +0.90%    ,
    D.R. Horton, Inc.
    DHI,
    +0.65%    ,
    Mastercard
    MA,
    +1.21%    ,
    T-Mobile US Inc.,
    TMUS,
    +1.00%
    Visa Inc.
    V,
    +1.19%
    and Waste Management Inc.,
    WM,
    +1.85%
    among others.

    Equities have been in a year-end rally mode, driven higher by tumbling benchmark yields that finance much of the U.S. economy and expectations of coming interest-rate cuts.

    The 10-year Treasury rate
    BX:TMUBMUSD10Y
    fell to 4.2% on Tuesday from a high of about 5% in October.

    The Dow Jones Industrial Average
    DJIA
    on Tuesday ended at its third-highest level on record, while the S&P 500 index
    SPX
    and Nasdaq Composite Index
    COMP
    added to a string of new closing highs for 2023. The Dow finished 0.6% away from its record close logged almost two years ago, while the S&P 500 was only 3.2% below its close from the same period, according to Dow Jones Market Data.

    The push higher for stocks followed inflation data for November that showed price pressures continued to ease from peak levels, but still were above the Fed’s 2% annual target.

    The consumer-price index pegged the annual rate of inflation at 3.1%, down from 3.2% in October, with the “last mile” of inflation expected to be the hardest part to tame.

    Investors now will be focused on Wednesday’s Federal Reserve decision. Short-term interest rates are expected to remain unchanged at a 22-year high, but the central bank is expected to update its “dot plot” forecast of rates over a longer time horizon.

    “Although the market will focus on the timing of rate cuts, we suspect Chair Powell will be keen to strike notes of caution to avoid financial conditions easing too much further to ensure the Fed continues to see encouraging progress on inflation,” said Emin Hajiyev, senior economist at Insight Investment, in emailed comments.

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  • U.S. stocks open mixed as investors weigh fresh data on inflation

    U.S. stocks open mixed as investors weigh fresh data on inflation

    U.S. stocks opened mixed on Tuesday as investors weighed a reading on inflation that was largely in line with economists’ forecasts. The Dow Jones Industrial Average
    DJIA,
    +0.35%
    was up less than 0.1% soon after the opening bell, while the S&P 500
    SPX,
    +0.07%
    slipped 0.2% and the Nasdaq Composite
    COMP,
    +0.07%
    fell 0.1%, according to FactSet data, at last check. The Bureau of Labor Statistics said Tuesday that inflation, as measured by the consumer-price index, rose 0.1% in November for a year-over-year rate of 3.1%. Economists polled by the Wall Street Journal had forecast that inflation would be unchanged in November while rising at an annual pace of 3.1%. So-called core inflation, which excludes energy and food prices, climbed 0.3% last month to increase 4% in the 12 months through November. That was in line with economists’ expectations. In the bond market, the yield on the 10-year Treasury note
    TMUBMUSD10Y,
    4.234%
    was up one basis point at around 4.24%, according to FactSet data, at last check.

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  • U.S. stocks open mostly lower as investors look ahead to inflation data, Fed policy meeting

    U.S. stocks open mostly lower as investors look ahead to inflation data, Fed policy meeting

    U.S. stocks opened mostly lower on Monday, after six straight weeks of gains, as investors look ahead to inflation data and the Federal Reserve’s policy meeting this week. The Dow Jones Industrial Average
    DJIA,
    +0.17%
    was up 0.2% soon after the opening bell, while the S&P 500
    SPX,
    +0.03%
    shed 0.1% and the Nasdaq Composite
    COMP,
    -0.27%
    fell 0.4%, according to FactSet data, at last check. A reading on November inflation, as measured by the consumer-price index, will be released on Tuesday. The following day, the Fed will release a statement on its monetary policy, after concluding its two-day meeting. Last week, all three major U.S. stock benchmarks closed at their highest levels of the year, with the S&P 500 finishing Friday at its highest value since March 29, 2022.

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