WEEKLY MARKET UPDATE 1/5/2024

After enjoying a fantastic rally into the end of 2023, stocks and bonds pulled back during the first week of 2024 and the S&P 500 broke a nine-week streak of gains.  However, stock market weakness in the January of a Presidential election year is not uncommon as per research from Bank of America, the S&P 500 has declined 52% of the time for a median monthly return of -0.16%.  In addition, the weakest stocks to start 2024 were generally the strongest performers last year, so this week’s market action was very consistent with portfolios repositioning due to the change of the calendar year.  For example, the 10% best performing stocks within the Russell 1000 last year, fell on average -2.6% during the first trading day of 2024, while the 10% worst performing stocks rose almost 0.7% (per Bespoke).  Next week will be highlighted by the December CPI report on Thursday and the unofficial start to fourth quarter (Q4) earnings on Friday.

EARNINGS EXPECTIONS

Corporate profits are always important for markets, but this approaching Q4 earnings season could be particularly meaningful, as investors attempt to gauge whether a soft economic landing remains the most likely scenario.  Fortunately, the setup appears to be fairly constructive as per data from FactSet, consensus S&P 500 earnings per share (EPS) growth estimates have fallen from 8% on September 30th to just 1.3% today.  This nearly 7% EPS estimate decline in just three months dwarfs the average 5-, 10-, 15- and 20-year declines of 3.5%, 3.3%, 4.2% and 3.8%, respectively.  Typically, stocks having a low bar to clear for earnings is not a bad thing and we expect this season’s results to play an outsized role in where stocks finish January.

Ian G. Browning, CFA
Managing Director, Investment Strategies | Shareholder

Thanks to our clients and friends who have referred business to us over the years.

Your endorsement has been the cornerstone of our growth and our greatest compliment.