Every weekday the CNBC Investing Club with Jim Cramer holds a “Morning Meeting” livestream at 10:20 a.m. ET. Here’s a recap of Tuesday’s key moments. 1. U.S. stocks were mixed Tuesday, resuming some of the early 2024 pressure we saw on Wall Street last week. The Nasdaq turned positive Tuesday as Nvidia pushed to another all-time high. The tech-heavy index soared more than 2% on Monday. Taking some of the pressure off tech stocks this week has been the 10-year Treasury yield hovering pretty steady around 4%. Key to the markets later in the week are two inflation reports: the consumer price index for December on Thursday and the producer price index on Friday. 2. Wall Street analysts seem to have differing opinions on Club name Wells Fargo ahead of Friday’s earnings. Deutsche Bank downgraded Wells Fargo stock to hold from buy, citing potentially weaker net interest income guidance and limited valuation upside. HSBC, on the other hand, raised its Wells Fargo price target to $55 per share from $45 but kept its hold rating. Overall, we don’t blame anyone for a note of caution when it comes to banks before we get quarterly results since the stocks enjoyed a nice rally into the end of the year in 2023. 3. We bought more Coterra Energy on Tuesday, looking for more exposure to natural gas as prices rise. The Club added 300 shares to the portfolio. This increased the weighting of the 50/50 nat gas and oil producer to 2.17% from 1.92%. Coterra is our sole energy play. We’re bullish on the stock because of its solid balance sheet and management’s ability to use capital efficiently. We think this will lead to more cash returned to its investors. (Jim Cramer’s Charitable Trust is long NVDA, WFC, MS, CTRA. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
Top Wall Street strategist Marko Kolanovic said a host of negative forces are forming that may potentially weigh on stock performance after a strong 2023, including more stubborn inflation, rising geopolitical risks and overbought conditions. “The disinflation thesis is likely to be challenged during 1H24 as the disinflation process stalls, equities appear overbought given low implied cash allocations and low short interest, and risks are rising for geopolitics to drive both a risk-off shift and a boost to inflation via increased shipping costs,” JPMorgan’s Kolanovic said in a note. Stocks closed out a strong 2023 with the S & P 500 climbing for nine weeks in a row at year-end, as investors cheered cooling inflation and the Federal Reserve’s outlook that it will ease policy in 2024. The benchmark equity index ended the year up 24%. But Kolanovic, JPMorgan’s chief market strategist and co-head of global research, said that optimism on inflation might have been premature. Moreover, he thinks the 2023 year end rally may have made the market so expensive as to mean it’s now overbought. .SPX 1Y mountain S & P 500 “Equity markets are now showing overbought conditions, with sentiment moving into complacent territory,” he said. Kolanovic also warned that falling bond yields, which have been a positive catalyst for stocks, could become a burden for Corporate America’s earnings growth if bonds are a harbinger of a slowing economy. “While [the] market interpreted falling bond yields since Oct. as solely a positive development, we do not think that this will sustain through the year. Lower yields could end up signaling weaker EPS delivery ahead, on softening pricing, sequential activity slowdown and profit margin compression,” Kolanovic said. JPMorgan sees the S & P 500 ending 2024 at 4,200, or 12% below current levels, making the bank the biggest bear on Wall Street with the lowest target, according to the CNBC PRO Market Strategist Survey. The average strategist’s 2024 forecast for the S & P 500 is 4,892.
RBC Capital Markets isn’t giving up on the market after the slow start to the year. Lori Calvasina, the bank’s head of U.S. equity strategy, raised her year-end S & P 500 price target to 5,150 from 5,000. This is approximately 9.6% higher than the S & P 500’s Friday closing level of 4,697.24. Last week, the S & P 500 snapped a nine-week winning streak as investors began pulling back on the technology titans. The yield on the benchmark U.S. 10-year Treasury also traded above 4% last week, further placing downward pressure on the equity market. On Monday, it dipped back below the key level. .SPX YTD mountain SPX in early 2024 Calvasina’s revised forecast now makes her one of the most bullish investors on Wall Street, according to CNBC’s Strategist Survey . She now has the second-highest price target of strategists in the survey, falling only behind Oppenheimer’s John Stoltzfus’ 5,200 forecast. However, Calvasina added she’s still concerned that “the weakness we’ve seen in the S & P 500 so far in 2024 hasn’t fully played out.” “In December we became concerned about the possibility of a near-term pullback in the U.S. equity market given deterioration in our sentiment work, and we are now concerned that the weak start in January is just the beginning of a phase of turbulence,” Calvasina wrote. Calvasina’s bear case sees the S & P 500 closing at 4,770 in 2024, just 1.5% above Friday’s close. Her bull case has the index rallying above 5,400, implying 15% upside. The strategist added that her earnings outlook is positive enough to justify another year of gains for the stock market. On the other hand, she noted that higher bond yields might become a “dampener” of U.S. equity returns, but wouldn’t necessarily become a “derailer.” Other risk factors include the 2024 U.S. presidential election, which could inject volatility into the market, and the economic downturn analysts are predicting this year. However, Calvasina believes that some of the headwinds from a potential slowdown could be offset by the market’s expectations for rate cuts, noting that stocks generally perform well in the six-month period before and after cuts begin. How to play it Going into this year, Calvasina is bullish on small-cap stocks, which currently look relatively cheap. However, the strategist added her worries that the asset class has become a much larger consensus call from investors in recent weeks. The Russell 2000 index rose 15% in 2023, lagging the large-cap S & P 500’s 24.2% advance. In early 2024, the small-cap benchmark has lost more than 2%.
Every weekday the CNBC Investing Club with Jim Cramer holds a “Morning Meeting” livestream at 10:20 a.m. ET. Here’s a recap of Mondays’ key moments. 1. U.S. stocks were mixed Monday as markets regrouped after last week’s losses. Gains were concentrated in the tech sector. The Nasdaq shot up more than 1% after the opening bell. Major winners in the group included Nvidia , which hit an all-time high early Monday. Amazon and Apple shares bounced and pushed the Nasdaq higher, too. The S & P 500 was up modestly while the Dow Jones Industrial Average edged a bit lower. 2. Wall Street analysts came to Apple’s defense after a series of new year downgrades . Evercore ISI told clients to buy last week’s dip in a new research note. Morgan Stanley analysts also said to stick with Apple on generative artificial intelligence efforts. To be sure, the Club trimmed positions in our Magnificent Seven positions (we own all of them except Tesla ) and others last week, including a small sale of Apple after last year’s rally outsized the position relative to the rest of our portfolio. We remain bullish on Apple because of its solid underlying fundamentals and growth prospects. 3. Big banks will begin to report quarterly earnings this week. Wells Fargo is slated to post fiscal results on Friday. Baird downgraded the Club name to neutral from buy ahead of the release. Analysts said the risk/reward for Wells Fargo is more balanced after the stock’s recent run-up. We feel the same way heading into the release, preferring to see expectations low rather than high. (Jim Cramer’s Charitable Trust is long NVDA, AMZN AAPL, WFC. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
A ‘now hiring’ sign is displayed in a retail store in Manhattan on January 05, 2024 in New York City.
Spencer Platt | Getty Images
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Hot jobs market The U.S. labor market added 216,000 jobs in December. That’s much more than the 170,000 expected by economists surveyed by Dow Jones, and the downwardly revised 173,000 jobs added in November. The unemployment rate held steady at 3.7%, defying estimates of a 10-basis-point rise. Meanwhile, average hourly earnings rose 4.1% from a year earlier, higher than the 3.9% forecast.
Losing week U.S. stocks inched up slightly Friday, but couldn’t reverse a weekly decline. Treasury yields ticked up for the second day, with the 10-year yield closing at 4.051%. The pan-European Stoxx 600 index retreated 0.27%. Retail stocks fell 1.1%, leading sector losses, after data showed German retail sales fell 2.5% for the month, much more than estimates of a 0.1% slide.
Grounded airplanes The U.S. Federal Aviation Administration has ordered a temporary grounding of the Boeing 737 Max 9 aircraft, which means airlines won’t be able to use those particular Boeing models for flying. The directive comes after a piece of the aircraft blew out in the middle of an Alaska Airlines flight, leaving a gaping hole on the side of the plane.
Potential Apple lawsuit Apple just can’t catch a break. Fresh off a downgrade to its shares by Barclays and Piper Sandler, the technology giant is potentially facing an antitrust lawsuit by the U.S. Department of Justice, according to a report from The New York Times. The lawsuit could target how the Apple Watch works exclusively with the iPhone, as well as the company’s iMessage service, which excludes non-Apple devices.
[PRO] Numbers to watch The U.S. consumer price index report comes out Thursday this week, and will be the major catalyst for markets as investors assess if the U.S. Federal Reserve is edging closer to its goal of keeping inflation at 2%. But don’t neglect Friday, which is jam-packed with earnings reports from big banks such as JPMorgan Chase, Citigroup and Bank of America.
The headline number on the U.S. jobs report’s undeniably startling — 216,000 new jobs in December, compared with an expected 170,000. The unemployment rate defied forecasts for it to fall, while average hourly earnings were higher than estimates too.
The data suggests the U.S. labor market’s still running hot despite the 11 interest-rate hikes implemented by the Federal Reserve.
But the numbers aren’t so drastic that rate hikes could be back on the table. Look more closely and you’ll find pockets of weakness in the report.
The headline number, expectation-busting as it is, probably won’t persuade the Fed to resume hiking.
“While the Dow Jones estimate is for a nonfarm payrolls gain of 170,000, Art Hogan, chief market strategist at B. Riley Financial, said the acceptable range is really something like 100,000-250,000,” CNBC’s Jeff Cox noted.
Consider also how October and November’s jobs numbers were downwardly revised, which point to a weaker-than-expected labor market last quarter. And when viewed on an annual basis, 2023 saw job growth of 2.7 million, dramatically lower than 2022’s addition of 4.8 million jobs.
The theme of growth continuing — but slowing — was also seen in December’s ISM services index, which measures business activity, such as price and inventory levels. The reading came in at 50.6%, indicating growth in the service sector, but that’s nearly two percentage points below expectations as well as November’s reading.
That’s probably why stocks managed to eke out small gains Friday, despite the shock of the headline jobs number.
But those marginal increases couldn’t prevent major indexes from registering their first negative week in 10. For the week, the S&P fell 1.52%, the Dow lost 0.59% and the Nasdaq slumped 3.25%, its biggest decline since September.
Investors hoping for a positive catalyst for markets will be keeping their fingers crossed, hoping December’s consumer price index report comes in cooler than expected.
A pedestrian holds an umbrella as they walk along a street in the rain in Times Square, New York, on Sept. 26, 2023.
Ed Jones | AFP | Getty Images
The state of the U.S. economy may be a chief concern among Americans, but 2023 wound up as a pretty good year for the macroenvironment.
Spending remained high, markets posted big gains and the Federal Reserve’s battle against inflation showed signs of cooling — without freezing. Then there’s the almost logic-defying resilience of the job market.
The U.S. labor market ended the year strong, creating more than 200,000 jobs in December, according to figures released Friday by the U.S. Bureau of Labor Statistics. While previous job creation estimates for October and November were revised downward by a combined 75,000, the unemployment rate remained at a low 3.7%, and December marked the 36th consecutive month of job creation for the U.S. economy.
In total, the U.S. created nearly 2.7 million jobs in 2023, when seasonally adjusted. That figure came despite concerns that the Federal Reserve’s ongoing fight against inflation through interest rate hikes might cool the labor market and put a chill on consumer spending.
Neither of those concerns came to fruition, however. In fact, consumer spending remained robust throughout the year, with monthly advanced retail sales staying above the $600 million mark for most of 2023, proving that despite many economic headwinds, U.S. consumers could not be deterred.
Here are nine other charts that show how the economy rounded out 2023.
While inflation continues to be top of mind for U.S. consumers, the rate of inflation cooled significantly in 2023. Meanwhile, wages rose throughout the year, eventually outpacing price increases.
U.S. consumers were in a mood to spend, particularly on experiences: 2023 was officially the year that travel rebounded, with the Thanksgiving holiday period breaking U.S. records. Nearly 150 million passengers were screened by the Transportation Security Administration across U.S. airports in November and December.
Americans spent on entertainment, too. With major hits such as “Barbie,” “Oppenheimer” and Taylor Swift’s The Eras Tour concert film, the U.S. box office came back in a big way last year from its Covid-19 pandemic lows.
Even assets such as crypto saw a rebound in 2023 after hitting a low in November of the previous year. Bitcoin prices ended the year at almost three times that previous low.
After its historic rate increases in 2022, the Federal Reserve tempered its war on inflation and only raised rates at four of its eight meetings in 2023. While the central bank’s target range for interest rates is the highest it has been since 2006, recent comments from Chair Jerome Powell have Fed watchers optimistic that rate cuts may be coming in 2024.
There were some trouble areas for consumers, however. Mortgage rates continue to be high. The average 30-year fixed rate in October was nearly triple what it was at the end of 2020 — although rates came down significantly by the end of the year — and existing home sales remain low, according to data from the National Association of Realtors. Until more housing inventory comes online, those issues are likely to persist into 2024.
Skyscrapers in the Canary Wharf financial, business and shopping district in London, UK.
Bloomberg | Bloomberg | Getty Images
The average FTSE 100 CEO will have earned more this year than the median full-time worker’s annual salary by 1 p.m. London time on Thursday, according to estimates from the High Pay Centre think tank.
The U.K.’s top bosses will surpass the milestone an hour earlier than they did in 2023, the calculations suggest, while leading bankers will exceed it on Jan. 17.
The calculations are based on the High Pay Centre’s analysis of the most recent available CEO pay figures from British blue chip companies’ annual reports, compared with government data on pay levels across the U.K. economy.
Median FTSE 100 CEO pay (excluding pension) currently stands at £3.81 million ($4.84 million), 109 times the median full time worker’s pay of £34,963, the think tank said. This represents a 9.5% increase on median CEO pay levels as of March 2023, while the median worker’s pay has increased by 6%.
“Lobbyists for big business and the financial services industry spent much of 2023 arguing that top earners in Britain aren’t paid enough and that we are too concerned with gaps between the super-rich and everybody else,” said High Pay Centre Director Luke Hildyard.
“They think that economic success is created by a tiny number of people at the top and that everybody else has very little to contribute. When politicians listen to these misguided views, it’s unsurprising that we end up with massive inequality, and stagnating living standards for the majority of the population.”
Leading business and finance figures in the U.K. in 2023 called for an increase in remuneration for British CEOs. The High Pay Centre highlighted that in December, Legal and General Investment Management adjusted its executive pay guidelines to permit companies it invests in to offer more generous incentive payments.
In May, London Stock Exchange CEO Julia Hoggett argued that pay levels for top executives were too low, and pose a risk to the U.K.’s ability to attract and retain elite domestic and international talent, in turn jeopardizing the economy.
“And yet, very often, this talent objective is hampered by the advice and analysis of the proxy agencies and some asset managers voting against executive pay policies even when those pay levels are significantly below global benchmarks,” she said in a post on the exchange’s website.
“Often the same proxy agencies and asset managers that oppose compensation levels in the UK support much higher compensation packages in different jurisdictions, notably in the U.S.”
S&P 500 CEOs stateside earned an average of $16.7 million in 2022 compared to an average full-time worker’s annual salary of $61,900, according to the American Federation of Labor and Congress of Industrial Organizations.
Hoggett said a “constructive discussion with all stakeholders about a topic that tends to generate emotion and strong views” was essential if the U.K. is to be placed on a competitive footing internationally.
‘Obscene levels of pay inequality’
The Trades Union Congress, which represents 48 member unions across the U.K., said Thursday’s figures showed Britain’s ruling Conservative government was presiding over “obscene levels of pay inequality.”
“While working people have been forced to suffer the longest wage squeeze in modern history, City bosses have been allowed to pocket bumper rises and bankers have been given unlimited bonuses,” TUC General Secretary Paul Nowak said in a statement.
A spokesperson for the U.K. Treasury was not immediately available to comment when contacted by CNBC.
U.K. workers and households have endured a historic cost of living crisis over the last two years, while the tax burden continues to grow and is expected to hit a post-war high of 37.7% of gross domestic product in 2028/29, according to the independent Office for Budget Responsibility. This is despite recently announced cuts to National Insurance tax on workers.
Sharon Graham, general secretary of Unite, one of the U.K.’s largest unions with over 1.2 million members, said the union would “not tolerate employers who want one rule for the bosses and another for the workers.”
“These CEOs need to get their snouts out of the trough and give their employees a proper piece of the pie. Unite is on a mission to make work pay in this country and where employers have ability to pay, we will continue to demand and win proper pay rises for our members,” she added.
CNBC’s Jim Cramer on Tuesday shared his market predictions for 2024, but also warned that the first days of the new year often don’t say much about the future.
He suggested that Wall Street may now be seeing a “sector rotation“ as some investors doubt that the Magnificent Seven tech stocks will continue their runs, instead buying up stocks that have seen steep declines such as food or pharmaceutical names.
“According to my crystal ball, people will take profits in the best of the best, the ones that have defined this market, yes, the Magnificent Seven and friends, as well as the richly valued software enterprise names,” Cramer said. “I think investors will use that cash to invest in companies that haven’t gotten any respect for ages.”
Many years begin with a lot of this “repositioning,” Cramer said, but the moves may be temporary. Investors may start to buy back stocks that performed well in December, albeit at lower levels, once companies start to report earnings, he added.
To Cramer, a lot of Wall Street action will center around the Federal Reserve’s decisions, with many trying to predict and then scrutinize the organization’s moves, all the while fearing a recession. Rather than getting too caught up with Fed worries, he said investors would be wise to choose stocks of companies that they believe have solid leadership and are reasonably valued — not dramatically higher than the average stock in the S&P 500.
“So, wait patiently for the sell-off that I’m expecting and then do some buying,” Cramer said.
The German share price index DAX graph is pictured at the stock exchange in Frankfurt, Germany, November 13, 2023.
Staff | Reuters
LONDON — European stocks were little changed on Thursday as global markets search for new record highs to close out the year.
The pan-European Stoxx 600 index hovered around the flatline by mid-morning, with health care stocks adding 0.5% while oil and gas stocks dropped 0.6%.
The continental blue chip index was last trading around the 478.66 mark, not far below the index’s record closing high of 483.44 notched in November 2021.
Stateside, U.S. stock futures were little changed in early premarket trade after another day of modest gains on Wall Street, with the S&P 500 benchmark also closing in on a record high.
Shares in Asia-Pacific were mostly higher overnight, with markets in mainland China and Hong Kong leading gains and Australia’s S&P/ASX 200 hovering near a two-year high. Japan’s Nikkei 225 and Topix bucked the trend to post slight declines.
Trading volumes are expected to be thin during the last two days of the trading year, with fewer data points on the economic calendar and all major central bank meetings out of the way.
In terms of individual share price movement in Europe, Spanish utility company Endesa fell 3% in early trade to the bottom of the Stoxx 600, while Danish biotech Zealand Pharma gained 3% to lead the index.
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Updated Dec 27, 2023, 7:34 am EST / Original Dec 27, 2023, 4:26 am EST
Stock futures traded slightly lower Wednesday after the S&P 500 finished higher Tuesday and just 0.45% below its record close of 4,796.56 hit Jan. 3, 2022. The broad market index has risen 24% this year and has gained 4.5% this month as traders bet the Federal Reserve will begin cutting interest rates as soon as March.
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Grocery items are offered for sale at a supermarket on August 09, 2023 in Chicago, Illinois.
Scott Olson | Getty Images
When Kyle Connolly looks back at 2023, she sees it as a year defined by changes and challenges.
The newly single parent reentered the workforce, only to be laid off from her job at a custom home-building company in November. At the same time, Connolly has seen prices climb for everything from her Aldi’s grocery basket to her condo’s utility costs.
In turn, she’s cut back on everyday luxuries like eating out or going to the movies. Christmas will look pared down for her three kids compared to years prior.
“I’ve trimmed everything that I possibly can,” said the 41-year-old. “It sucks having to tell my kids no. It sucks when they ask for a little something extra when we’re checking out at the grocery store and having to tell them, ‘No, I’m sorry, we can’t.'”
Economic woes have seemed more apparent within her community in Florida’s panhandle. Connolly has noticed fewer 2022 Chevy Suburbans on the road, replaced by older Toyota Camry models. The waters typically filled with boats have been eerily quiet as owners either sold them or tried to cut back on gas costs. Fellow parents have taken to Facebook groups to discuss ways to better conserve money or rake in extra income.
The struggles among Connolly and her neighbors highlight a key conundrum puzzling economists: Why does the average American feel so bad about an economy that’s otherwise considered strong?
By many accounts, it has been a good year on this front. The annualized rate of price growth is sliding closer to a level preferred by the Federal Reserve, while the labor market has remained strong. There’s rising hope that monetary policymakers have successfully cooled inflation without tipping the economy into a recession.
Yet closely watched survey data from the University of Michigan shows consumer sentiment, while improving, is a far cry from pre-pandemic levels. December’s index reading showed sentiment improved by almost 17% from a year prior, but was still nearly 30% off from where it sat during the same month in 2019.
“The main issue is that high prices really hurt,” said Joanne Hsu, Michigan’s director of consumer surveys. “Americans are still trying to come to grips with the idea that we’re not going back to the extended period of low inflation, low interest rates that we had in the 2010s. And that reality is not the current reality.”
Still, Hsu sees reason for optimism when zooming in. Sentiment has largely improved from its all-time low seen in June 2022 — the same month the consumer price index rose 9.1% from a year earlier — as people started noticing inflationary pressures recede, she said.
One notable caveat was the drop in sentiment this past May, which she tied to the U.S. debt ceiling negotiations. The 2024 presidential election has added to feelings of economic uncertainty for some, Hsu said.
Continued strength in the labor market is something economists expected to sweeten everyday Americans’ views of the economy. But because consumers independently decide how they feel, jobs may hold less importance in their mental calculations than inflation.
There are still more job openings than there are unemployed people, according to the latest data from the Bureau of Labor Statistics. Average hourly pay has continued rising — albeit at a slower rate than during the pandemic — and was about 20% higher in November than it was in the same month four years ago, seasonally adjusted Labor Department figures show.
That’s helped boost another widely followed indicator of vibes: the Conference Board’s consumer confidence index. Its preliminary December reading was around 14% lower than the same month in 2019, meaning it has rebounded far more than the Michigan index.
While the Michigan index compiles questions focused on financial conditions and purchasing power, the Conference Board’s more closely gauges one’s feelings about the job market. That puts the latter more in line with data painting a rosier picture of the economy, according to Camelia Kuhnen, a finance professor at the University of North Carolina.
“You think that they’re talking about different countries,” Kuhnen said of the two measures. “They look different because they focus on different aspects of what people would consider as part of their economic reality.”
A hot job market can be a double-edged sword for sentiment, Michigan’s Hsu noted. Yes, it allows workers to clinch better roles or higher pay, she said. But when those same workers put on their consumer hats, a tight market means shorter hours or limited availability at their repair company or veterinarian’s office.
Other reasons why consumers feel positively about the economy this year can only be true for certain — and often wealthier — groups, economists say.
UNC’s Kuhnen said Americans would be pleased if they are homeowners seeing price appreciation. Another reason for optimism: If they had investments during 2023’s stock market rebound.
Without those cushions, people on the lower end of the income spectrum may feel more of a pinch as higher costs bite into any leftover savings from pandemic stimulus, Kuhnen said. Elsewhere, the resumption of student loan payments this year likely also caused discontent for those with outstanding dues, according to Karen Dynan, a Harvard professor and former chief economist for the U.S. Treasury Department.
Marissa Lyda moved with her husband and two kids to Phoenix from Portland earlier this year, in part due to lower housing costs. With profits from the value gained on the property she bought in 2019, her family was able to get a nicer house in the Grand Canyon state.
Yet she’s had to contend with an interest rate that’s more than double what she was paying on her old home. Though Arizona’s lower income tax has fattened her family’s wallet, Lyda has found herself allocating a sizable chunk of that money to her rising grocery bill.
The stay-at-home mom has switched her go-to grocer from Kroger to Walmart as value became increasingly important. She’s also found herself searching harder in the aisles for store-brand food and hunting for recipes with fewer ingredients.
Her family’s financial situation certainly doesn’t feel like it reflects the economy she hears experts talking about, Lyda said. It’s more akin to the videos she sees on TikTok and chatter among friends about how inflation is still pinching pocketbooks.
“I look at the news and see how they’re like, ‘Oh, best earnings, there’s been great growth,'” the 29-year-old said. “And I’m like, ‘Where’s that been?'”
Economists wonder if social media discourse and discussion about a potential recession have made Americans think they should feel worse about the economy than they actually do. That would help explain why consumer spending remains strong, despite the fact that people typically tighten their belts when they foresee financial turmoil.
There’s also a feeling of whiplash from the runaway inflation that snapped a long period of low-to-normal price growth, said Harvard’s Dynan. Now, even as the annual rate of inflation has cooled to more acceptable levels, consumers remain on edge as prices continue to creep higher.
“People are still angry about the inflation we saw in 2021 and, in particular, 2022,” Dynan said. “There’s something about the salience of … the bill for lunch that you see every single day that just maybe resonates in your brain, relative to the pay increase you get once a year.”
Federal Reserve Board Chairman Jerome Powell speaks during a press conference following a closed two-day meeting of the Federal Open Market Committee on interest rate policy at the Federal Reserve in Washington, U.S., December 13, 2023.
Kevin Lamarque | Reuters
Another potential problem: The average person may not completely understand that some inflation is considered normal. In fact, the Federal Reserve, which sets U.S. monetary policy, aims for a 2% increase in prices each year. Deflation, which is when prices decrease, is actually seen as bad for the economy.
Despite these quandaries, economists are optimistic for the new year as it appears increasingly likely that a recession has been avoided and the Fed can lower the cost of borrowing money. For everyday Americans like Connolly and Lyda, inflation and their financial standing will remain top of mind.
Lyda has cut treats like weekly Starbucks lattes out of the budget to ensure her family can afford a memorable first holiday season in their new home. In 2024, she’ll be watching to see if the Fed cuts interest rates, potentially creating an opportunity to refinance the loan on that house.
“You just have to realize that every season of life may not be this huge financial season,” Lyda said. “Sometimes you’re in a season where you’re just trying to hold on. And I feel like that’s what it’s been like for most Americans.”
Morgan Stanley outgoing CEO James Gorman on Thursday highlighted why we’re staying in the bank stock. During his CNBC exit interview , Gorman forecasted a better environment for Morgan Stanley’s crucial dealmaking business. The long-time chief also praised incoming CEO Ted Pick and outlined succession plans. Gorman has led Morgan Stanley through tumultuous times during his tenure. He took over as CEO in the aftermath of the Great Financial Crisis and recently steered the company through a mini-banking crisis that was touched off by the March collapse of Silicon Valley Bank. After more than 14 years as CEO, Gorman looks like he’s leaving Pick a Morgan Stanley on the upswing. MS YTD mountain Morgan Stanley (MS) year-to-date performance The stock, too. As the broader market melts up into year-end, the stock has gotten back some of its mojo — gaining 17% in the past month alone, outperforming the S & P 500 ‘s 4% increase over the same period. However, Morgan Stanley shares are only up 8% year to date, far underperforming the market. To be sure, bank stocks overall have been struggling to recover after the SVB failure. Remember, before SVB, Morgan Stanley went to a 52-week high of nearly $101 in February. The stock has been making a run back toward those highs, trading around $92 on Thursday. Here are two key takeaways from Gorman’s interview that speak to the future of the bank and the opportunities that lie ahead for the stock. Investment banking Gorman predicted a pickup in deal-making, and the Club is optimistic about any signs that point to a boost in Morgan Stanley’s investment banking business, which has been dormant for years due to a dearth of mergers and acquisitions and initial public offering softness. However, a slew of recent M & A activity and IPOs shows signs that sentiment could be improving. During Tuesday’s December Monthly Meeting , Jim Cramer said he thought Morgan Stanley’s third quarter — the one that sent the stock spiraling in October — wasn’t nearly as bad as most investors thought. We made a small buy that day because we felt the selloff was overdone. But Jim acknowledged the results should have been better, especially on the asset-gathering side. Investors are now starting to remember how strong Morgan Stanley’s M & A and underwriting franchises are. Jim thinks that this only strengthens our investment case for Morgan Stanley, which has been pivoting toward the more reliable revenue streams of wealth management to smooth out earnings from the more episodic investment banking. We’re hopeful that once the macro environment improves and the Federal Reserve ends its interest rate hiking cycle (which increasingly appears to be the case), investing banking and wealth management can both grow at the same time. That’s why Morgan Stanley has been one of our favorite ideas for a more dovish Fed. Gorman said in October that “the minute you see the Fed indicate they’ve stopped raising rates, the M & A and underwriting calendar will explode because there is enormous pent-up activity.” We’re still early in this prediction, but it already looks like a prescient call. CEO succession Pick, current Morgan Stanley co-president and 33-year capital markets veteran, will step into the CEO role at the start of 2024. Jim previously described Pick as a great choice for the job, saying his appointment “removes an uncertainty” for the bank amid an uncertain macro environment. The 65-year-old Gorman will stay on as executive chairman until the end of next year. Meanwhile, the other two contenders for the top role, Andy Saperstein and Dan Simkowitz, will become co-presidents and receive hefty $20 million compensation packages — likely an effort to keep them from leaving. So far, Morgan Stanley has been able to avoid a dramatic leadership shakeup, ensuring in-house continuity. Pick is “tremendously wicked smart,” Gorman said. “He has intrinsic qualities of what it’s going to take to lead this institution.” For his part, The 50-something Pick said he’s following a similar playbook to Gorman. “The business strategy is sound. There will be no change in strategy,” he told CNBC in a previous interview . “We know what we are after 15 years of transformation under James’ extraordinary guidance.” (Jim Cramer’s Charitable Trust is long MS . See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
James Gorman, Morgan Stanley CEO, July 18, 2023.
CNBC
Morgan Stanley outgoing CEO James Gorman on Thursday highlighted why we’re staying in the bank stock.
Parcels are seen in a street nearby UPS and FedEx trucks in a street of the Manhattan borough in New York City on December 4, 2023.
Charly Triballeau | AFP | Getty Images
This report is from today’s CNBC Daily Open, our new, international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.
Worst day in months U.S. markets fell Wednesday, with all major indexes snapping their winning streaks in one of their worst trading sessions in months. Still, U.S. Treasury yields continued to dip. Asia-Pacific markets lost ground Thursday, following Wall Street lower. South Korea’s Kospi Index slipped 0.77% even as the country’s producer prices rose at their slowest pace in four months.
Clock’s ticking on watch ban Apple has failed in its bid to delay a ban on sales of Apple Watch, according to an International Trade Commission filing. That means only a White House intervention will let Apple continue selling its watches in the U.S. Joe Kiani, CEO of Masimo — the company involved in the intellectual property dispute with Apple — told CNBC on Monday that Apple had not reached out to settle.
Tesla’s the “it” stock Out of all securities on the U.S. market, Tesla’s on pace to attract the most amount of individual investor dollars in 2023, according to data from Vanda Research. That means inflows into the stock will surpass the SPDR S&P 500 ETF Trust, which tracks the largest index in the world. To put Tesla’s popularity in perspective, it wasn’t even among the top 20 stocks retail investors bought before 2019.
[PRO] Diversify your portfolio The upcoming year presents several challenges to investors. A recession might hit the U.S. economy, geopolitical risks might escalate and inflation might rebound. CNBC Pro spoke to three investment experts to find out how to create a diversified portfolio that can hedge against volatility in 2024.
FedEx‘s performance is often seen as a bellwether for the general economy. When businesses ship fewer parcels, it tends to indicate a slowdown in economic activity.
So, when FedEx issued a worse-than-expected forecast for its current fiscal year, and reported disappointing second-quarter results, it wasn’t solely a warning for investors in the company. FedEx, whose stock sank 12.05%, may also signal trouble for the broader market, according to Wolfe Research.
″[W]hile volatile at times, the correlation between FDX and the S&P has been a solid one,” Wolfe Research managing director Rob Ginsberg wrote on Monday. “Now, it probably won’t derail the year-end melt-up, but given the multitude of overbought conditions and stretched indicators, a market pricing in perfection just got a bit of troubling news.”
And markets indeed had a bad day. The S&P 500 tumbled 1.47%, the most it’s lost in one session since September. Meanwhile, the Dow Jones Industrial Average fell 1.27% and the Nasdaq Composite lost 1.5% — both indexes snapped their nine-day winning streaks in their worst day since October.
That disappointing showing, however, doesn’t necessarily mean the start of a prolonged slide for markets. Treasury yields are still dipping, which tends to boost stocks. There were also pockets of strength amid the sell-off yesterday. Alphabet, for instance, gained 1.24% and touched a new 52-week high during the session. Consumer confidence in December also picked up, according to the Conference Board.
Keith Buchanan, senior portfolio manager at Globalt Investments, said market losses were “more technical than fundamental,” meaning it was more the breakneck pace at which stocks had been rallying that posed a risk, rather than their intrinsic value.
“Markets were becoming overbought, and a pullback like this is natural given those conditions,” Buchanan said.
As any recipient of a FedEx package knows, a delayed delivery isn’t the end of the world; you just have to move past the hiccup. The same goes for markets.
Several Tesla electric vehicles are parked in front of a Tesla service center in the Kearny Mesa region, in San Diego, California, U.S., October 31, 2023.
The investor, who also happens to work in the European auto industry, bought Tesla shares nearly every month in 2023 and has almost doubled the size of his position over the course of the year. Sustic has no other electric vehicle holdings out of a belief that competitors won’t be able to beat Tesla’s technology.
“There is no catching up with them,” said the 32-year-old, who also has two Tesla cars at his home in Croatia. “It’s just a matter of time when the stock will explode.”
Sustic isn’t alone. Tesla, which entered the S&P 500 three years ago this week, is on pace to attract the largest flow of individual investor dollars of any security in 2023, according to data from Vanda Research. The firm calculates net inflows to find these favorites, subtracting the amount of stock sold from what was bought.
That means Tesla will eclipse even the SPDR S&P 500 ETF Trust (SPY), which tracks the largest stock market index in the world. This underscores the stock’s fast ascent to retail-investor glory, especially considering Tesla wasn’t even among the top 20 equities that individual investors bought before 2019, Vanda data shows.
Tesla’s increasing favor among retail traders can be tied to its comeback in 2023, according to Christopher Schwarz, a finance professor at the University of California Irvine. After plunging 65% in 2022, the Elon Musk-led stock has more than doubled in 2023.
The stock has outperformed the market this year in tandem with other mega-cap technology equities dubbed the “Magnificent 7.” Many investors looking to play “disruptive” technology in this elite group have focused on Tesla and chipmaker Nvidia. But after more than tripling this year thanks to an appetite for all things tied to artificial intelligence, Schwarz said Nvidia may be too expensive for many individual investors.
Schwarz researches retail trader behavior, and thinks a lot of attention comes from Musk. The Tesla CEO’s contentious purchase of X, formerly known as Twitter, has brought increased media coverage as well as scrutiny of the billionaire business mogul, Schwarz said.
When faced with thousands of stocks to choose from, Schwarz said individual traders mainly look for names that grab their attention, are familiar and have saliency to current trends. Given Musk’s persona, the growing ubiquity of Teslas on the road and concerns about climate change, Schwarz said Tesla checks many boxes for everyday investors.
“It’s always in people’s minds to trade when they’re looking for something to trade,” Schwarz said.
Individual investors told CNBC that Tesla’s bumpy ride in recent years hasn’t made them doubt the company as much as it’s created opportunities to pick up shares at cheaper prices. To them, there’s little doubt Tesla’s share price will continue to surge.
One of those is Jeremy Ford, a construction contractor in Virginia who first bought Tesla shares as the pandemic took hold in 2020. He became interested when his wife considered — and ultimately ended up — purchasing a Tesla.
The 48-year-old now holds about the same number of Tesla shares as he did when 2023 began, but lowered his cost basis. Given an interest in disruptive technology, Ford reallocated some of those profits to new stakes in Palantir and Nvidia. The latter is tracking to see the fourth largest net inflows this year, while the former is not in the top 20, according to Vanda data.
Elon Musk speaks onstage during The New York Times Dealbook Summit 2023 at Jazz at Lincoln Center on November 29, 2023 in New York City.
Slaven Vlasic | Getty Images
Still, he’s all in on Tesla’s story, citing the push into robots and AI chips as cause for long-term optimism. His only serious concern would be if Musk left and the company’s performance worsened.
“If you can find a company that makes a product that people love, and it’s different than anything that other people have, then you have that chance to really make substantial money,” Ford said. “At some point, I do believe that I’ll look back at the price of the stock now and go, ‘Wow, that was a bargain.'”
Despite Tesla’s strong year on Wall Street and Main Street, others see challenges ahead. Roth MKM analyst Craig Irwin said profit margins could come under pressure from additional price cuts amid cooling growth.
But that may not dent individual investors’ enthusiasm. In fact, Irwin said the stock could be a beneficiary of turbulence in the electric vehicle industry, because any uncertainty would lead investors to companies like Tesla that have proven they can design, make and sell vehicles.
Given their affinity for the brand, Irwin said retail investors may also stick with Tesla longer than institutional investors. That could keep Tesla stock “levitating” above where it would otherwise be priced.
“Retail tends to trade on guts and heart,” Irwin said. “And a lot of people love Tesla.”
Changes in individual investor sentiment are so key to Tesla’s stock performance that hedge funds take note of these trends when evaluating what to do, the analyst noted earlier this year.
Irwin is in the majority on Wall Street in giving Tesla a neutral rating of no more than “hold,” neither recommending it be bought nor sold. Following 2023’s rebound, the average analyst surveyed by LSEG sees the stock falling about 13% over the next year.
Individual investors have often been the butt of the joke, with investing experts pointing to their inability to time the market and best allocate their money.
Yet individual traders have gained attention following the rise of short-squeezed “meme” stocks during the pandemic. Even as that craze fizzled, retail trading remains popular: Everyday investors put more than four times the amount of money into their 20 most-bought securities in 2023 than they did in all of 2018, according to Vanda data from early December.
For Schwarz, the UC professor, the flight to Tesla this year is complicated.
It’s concerning, he said, if individual investors are making bigger bets on single stocks than funds that invest in diversified indexes like the S&P 500 ETF. Still, while investments that spread bets across a pool of stocks is safer, trying to pick certain companies is more desirable than not being in the market at all, he said.
“Traders would be much better off if they just bought [the] index and forgot the password to their brokerage account,” he said. But, “even if Tesla doesn’t do as well as the market, it’s still better than probably just spending it on useless consumption and not participating.”
A FedEx truck and cars commute on Highway 101 during heavy rain in San Francisco Bay Area of California, United States on December 20, 2023.
Tayfun Coskun | Anadolu | Getty Images
This report is from today’s CNBC Daily Open, our new, international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.
UK inflation’s looking OK U.K. inflation slid to 3.9% in November, the lowest annual reading since September 2021. That figure’s lower than the 4.4% economists had expected, and the 4.6% reading in October. Moreover, prices actually fell 0.2% for the month, compared with estimates of a 0.1% rise. Core consumer price index was also lower than expected, prompting a sharp fall in U.K. 10-year gilt yield.
Tesla’s the “it” stock Out of all securities on the U.S. market, Tesla’s on pace to attract the most amount of individual investor dollars in 2023, according to data from Vanda Research. That means inflows into the stock will surpass the SPDR S&P 500 ETF Trust, which tracks the largest index in the world. To put Tesla’s popularity in perspective, it wasn’t even among the top 20 stocks retail investors bought before 2019.
[PRO] Due for a breather Despite the massive rally in markets last week — and, indeed, since November — several strategists are cautioning their clients to be defensive, especially when it comes to the new year. The “rally is ripe for a breather,” wrote one Wall Street strategist, because earnings might falter in 2024.
FedEx‘s performance is often seen as a bellwether for the general economy. When businesses ship fewer parcels, it tends to indicate a slowdown in economic activity.
So, when FedEx issued a worse-than-expected forecast for its current fiscal year, and reported disappointing second-quarter results, it wasn’t solely a warning for investors in the company. FedEx, whose stock sank 12.05%, may also signal trouble for the broader market, according to Wolfe Research.
″[W]hile volatile at times, the correlation between FDX and the S&P has been a solid one,” Wolfe Research managing director Rob Ginsberg wrote on Monday.
“Now, it probably won’t derail the year-end melt-up, but given the multitude of overbought conditions and stretched indicators, a market pricing in perfection just got a bit of troubling news.”
And markets indeed had a bad day. The S&P 500 tumbled 1.47%, the most it’s lost in one session since September. Meanwhile, the Dow Jones Industrial Average fell 1.27% and the Nasdaq Composite lost 1.5% — both indexes snapped their nine-day winning streaks in their worst day since October.
That disappointing showing, however, doesn’t necessarily mean the start of a prolonged slide for markets. Treasury yields are still dipping, which tends to boost stocks. There were also pockets of strength amid the sell-off yesterday. Alphabet, for instance, gained 1.24% and touched a new 52-week high during the session. Consumer confidence in December also picked up, according to the Conference Board.
Keith Buchanan, senior portfolio manager at Globalt Investments, said market losses were “more technical than fundamental,” meaning it was more the breakneck pace at which stocks had been rallying that posed a risk, rather than the their intrinsic value.
“Markets were becoming overbought, and a pullback like this is natural given those conditions,” Buchanan said.
As any recipient of a FedEx package knows, a delayed delivery isn’t the end of the world; you just have to move past the hiccup. The same goes for markets.
U.S. stocks have been trending higher since the Investing Club’s November Monthly Meeting as markets celebrate signs of cooling inflation and a seemingly less hawkish Federal Reserve . Watch our December Monthly Meeting at live noon ET and later on video. The S & P 500 has jumped 5.2% since the market close on the Nov. 15 meeting day through Monday’s close. Equities have sustained a rally after the U.S. central bank indicated that three interest rate cuts were on the table next year. A pullback in Treasury yields has also boosted risk assets. Here are the Club’s five top-performing stocks over that stretch ahead of Tuesday’s Monthly Meeting for December. They span three sectors from consumer to tech to banks. 1. Foot Locker Foot Locker came in first for gains since November’s Monthly Meeting. Shares of the company surged 34.2% over the period after posting better-than-feared quarterly results and upbeat commentary from Wall Street analysts. Piper Sandler analyst raised its rating on Foot Locker to a buy from a hold last week, saying that 2024 could be a big turnaround year for the embattled retailer. Analysts see margin expansion opportunities for Foot Locker as the firm’s inventory stabilizes to healthier levels. The stock popped on that positive note, but we’re optimistically cautious. FL YTD mountain Foot Locker (FL) performance year-to-date The stock has dragged this year, like many retailers, as shoppers continue pulling back on discretionary spending amid macroeconomic uncertainty and warnings of a recession. Shares are down 16% year-to-date. It’s a make-or-break quarter for Foot Locker, and we need to see more progress around its long-term prospects to stay in. Still, we’re hopeful on management’s track record around embattled companies, however. CEO Mary Dillon, who overhauled Ulta Beauty , was a key reason we invested in Foot Locker to begin with. 2. Salesforce Coming in second for gains is Salesforce . The Club stock popped 20.1% on the back of a strong fiscal 2024 third quarter . During the earnings call, management delivered a rosy outlook and CEO Marc Benioff named some “green shoots” for the business. CRM YTD mountain Salesforce (CRM) performance year-to-date Overall, we were happy with the cloud software company’s improving margins and growing sales. The stock’s rally continued Monday when Wolfe Research analysts shared a rosy outlook for the company. “This is one I would not take profits in,” Jim Cramer recently said of Salesforce . “I want it to run.” 3. Palo Alto Networks Palo Alto Networks jumped 20.06%, coming in third for gains over the period. In November, the company became the first in the cybersecurity industry to hit a whopping $100 billion market capitalization — a goal long held by management. PANW YTD mountain Palo Alto Networks (PANW) performance year-to-date “The winner and new champion of cybersecurity may actually be Palo Alto,” Jim said after the firm passed the market cap milestone on Nov. 30. The stock has cooled some since but the Club is bullish on Palo Alto compared to peers like Fortinet because its revenue streams are more diversified and less cyclical. Overall, CEO Nikesh Arora said he anticipates even more demand for Palo Alto’s offerings into 2024 as companies continue to face cybersecurity threats and various hacks. “This year has been a phenomenal year for cybersecurity stocks,” Arora told Jim during an interview Monday, adding that more businesses will rely on these kinds of services. “And I think it’s just the beginning.” 4. Broadcom Broadcom placed fourth in terms of gains. The stock has jumped 17.6% since November’s Monthly Meeting. The semiconductor giant was one of the S & P 500’s best-performers last week in a delayed reaction to a solid outlook for recently acquired VMWare. AVGO YTD mountain Broadcom (AVGO) performance year-to-date Since reporting earnings after the closing bell on Dec. 7, Broadcom shares gained 24% as of Monday’s close of $1,147. Last Friday, we increased our price target to $1,200 per share from $1,000. On Monday, we took some profits, selling 5 shares . We’re still big believers in the company and own 75 shares in our portfolio. 5. Wells Fargo Coming in fifth is Wells Fargo , whose stock has jumped 15.9% over the period. This comes amid a broader market rally, which has lifted lagging groups like financials. WFC YTD mountain Wells Fargo (WFC) performance year-to-date We remain upbeat on shares because of its multi-year turnaround plan. The Club sees even more long-term growth prospects once regulators lift the $1.95 trillion asset cap , which should in turn allow the firm to expand its balance sheet and rake in more profits. (Jim Cramer’s Charitable Trust is long FL, CRM, PANW, AVGO, WFC. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
Traders work during the opening bell at the New York Stock Exchange (NYSE) on August 16, 2022 at Wall Street in New York City.
Angela Weiss | AFP | Getty Images
U.S. stocks have been trending higher since the Investing Club’s November Monthly Meeting as markets celebrate signs of cooling inflation and a seemingly less hawkish Federal Reserve.
Watch our December Monthly Meeting at live noon ET and later on video.
Stock futures traded flat Tuesday, a day after the S&P 500 finished up 0.5% and moved closer to its all-time. The broad market index stands just 1.2% below its record of 4,796.56 reached in early January 2022.
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Market optimism over the potential for interest rate cuts next year is dangerously overdone, according to former FDIC Chair Sheila Bair.
Bair, who ran the FDIC during the 2008 financial crisis, suggests Federal Reserve Chair Jerome Powell was irresponsibly dovish at last week’s policy meeting by creating “irrational exuberance” among investors.
“The focus still needs to be on inflation,” Bair told CNBC’s “Fast Money” on Thursday. “There’s a long way to go on this fight. I do worry they’re [the Fed] blinking a bit and now trying to pivot and worry about recession, when I don’t see any of that risk in the data so far.”
The Dow hit all-time highs in the final three days of last week. The blue-chip index is on its longest weekly win streak since 2019 while the S&P 500 is on its longest weekly win streak since 2017. It’s now 115% above its Covid-19 pandemic low.
Bair believes the market’s bullish reaction to the Fed is on borrowed time.
“This is a mistake. I think they need to keep their eye on the inflation ball and tame the market, not reinforce it with this … dovish dot plot,” Bair said. “My concern is the prospect of the significant lowering of rates in 2024.”
Bair still sees prices for services and rental housing as serious sticky spots. Plus, she worries that deficit spending, trade restrictions and an aging population will also create meaningful inflation pressures.
“[Rates] should stay put. We’ve got good trend lines. We need to be patient and watch and see how this plays out,” Bair said.
A trader works, as a screen displays a news conference by Federal Reserve Board Chairman Jerome Powell following the Fed rate announcement, on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., December 13, 2023.
Brendan Mcdermid | Reuters
This report is from today’s CNBC Daily Open, our new, international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.
Asia markets fall U.S. markets mostly rose Friday amid a tumultuous day of trading, giving major indexes their seventh consecutive week of gains. However, Asia-Pacific markets slumped Monday, with Hong Kong’s Hang Seng index falling around 1%. It was dragged down by shares of SenseTime, which plunged as much as 18.25% to its all-time low on news the company’s founder had passed away.
Lowered risk appetite For the first half of the year, family offices in Asia had bet big on risky assets, said Hannes Hofmann of Citi Private Bank. That’s because Asian family offices were anticipating a rebound in China’s economy. But as the country’s economy slows down and Asian stock markets lag behind that of the U.S., that appetite for risk’s dwindling, according a Citi Private Bank global survey.
AI job losses There are signs humans are losing jobs to artificial intelligence. According to a recent report from ResumeBuilder, 37% of respondents say AI has replaced workers this year, while 44% report AI will result in layoffs in 2024. But experts say this trend isn’t a wholesale replacement of humans — but a redefinition of the sort of jobs we can do.
[PRO] ‘Poised to pounce’ Jefferies is “poised to pounce” on several global stocks next year, the investment bank’s analysts wrote. Three stocks, which include companies with strong cash flows and attractive risk-reward ratios, made it to Jefferies’ top choices for 2024. And all of them have at least a 60% potential upside.
The “everything rally” spurred by Wednesday’s Federal Reserve meeting appears to have lost its legs — not least because the Fed itself seemed slightly spooked by how aggressively markets are pricing in rate cuts for next year.
According to the dot plot, which is a projection of where Fed officials expect interest rates to be in the future, there could be three 25-basis-point cuts next year. But markets think there’s more than a 38% chance rates will plummet to a range of 3.75% to 4% — that’s six 25-basis-point cuts — by December next year, according to the CME FedWatch Tool.
On Friday, New York Federal Reserve President John Williams tried to rein in some of that exuberance.
“I just think it’s just premature to be even thinking about that,” Williams said, when asked about futures pricing for a rate cut in March.
Williams even warned rates might go up.
“One thing we’ve learned even over the past year is that the data can move and in surprising ways, we need to be ready to move to tighten the policy further, if the progress of inflation were to stall or reverse.”
That said, Friday also saw a quarterly event known as “triple witching,” the confluence of expiring stock index futures and options, as well as individual stock options. Furthermore, the S&P and Nasdaq-100 rebalanced their indexes, meaning the weight of some stocks on the index was changed. That could have exaggerated price moves and increased volatility as investors, accordingly, rebalanced their portfolios.
Finally, perhaps investors shouldn’t be surprised or disappointed the rally’s subsiding. “The market doesn’t go up every day, no matter how strong a trend is,” Chris Larkin, managing director of trading and investing at E-Trade points out. “Pullbacks and pauses are inevitable, regardless of how big they are or how long they last.”
The corollary to that is even a decline won’t last. Barring any shocks, signs are pointing to Santa spreading cheer in markets as the year wraps up.
