The stock market in the United States is showing signs of stabilization after a sluggish start to the year. Let’s take a look at how stock-index futures are currently trading:
S&P 500 Futures
S&P 500 futures (ES00) have risen by 7 points, or 0.1%, to reach 4753.
Dow Jones Industrial Average Futures
Dow Jones Industrial Average futures (YM00) have added 46 points, or 0.1%, and are now at 37743.
Nasdaq-100 futures (NQ00) have climbed by 34 points, or 0.2%, to reach 16572.
On Wednesday, the Dow Jones Industrial Average fell by 285 points, equivalent to a 0.76% decline, closing at 37430. The S&P 500 also experienced a decline of 38 points, or 0.8%, reaching 4705. Meanwhile, the Nasdaq Composite dropped by 174 points, equivalent to a 1.18% decline, closing at 14592.
These numbers indicate that the S&P 500 has already lost 1.4% and the Nasdaq Composite has lost 2.8% in just the first two sessions of the new year. This decline can be attributed to investors taking profits following a significant rally towards the end of last year.
The sell-off can also be attributed to several factors, including heightened tensions in the Middle East, concerns about overbought equity indices due to the surge, and worries about the Federal Reserve’s pace of reducing borrowing costs this year.
The release of minutes from the Fed’s December meeting on Wednesday revealed that officials acknowledge the recent decrease in inflation. However, they still foresee interest rates staying high for a longer duration than what traders were expecting.
Overall, despite the challenging start, investors and market analysts remain cautiously optimistic about the U.S. stock market’s potential for recovery and growth.
Market Recalibration and Economic Activity
“The beginning of 2024 has seen a slight recalibration of market-based interest rate cut expectations, lingering geopolitical concerns, position adjustments ahead of U.S. labor statistics, and a flurry of corporate debt issues raising supply concerns, all contributing to a subdued start to the year in financial markets,” said Stephen Innes, managing partner at SPI Asset Management.
Impact on Equity Bulls
Equity bulls are hopeful that the data will continue to show a slowdown in economic activity. This would help the Fed achieve its 2% inflation target without indicating a contraction that would negatively affect corporate earnings. The fourth quarter of 2023 earnings season will begin at the end of next week.
December Nonfarm Payrolls Report
Investors will closely monitor the December nonfarm payrolls report, which will be released on Friday. They hope to see steady jobs growth with minimal wage pressures.
U.S. Economic Updates on Thursday
On Thursday, several U.S. economic updates are set for release. These include the ADP private sector employment report for December, scheduled for 8:30 a.m. Eastern, weekly initial jobless claims also at 8:30 a.m., and the S&P final services PMI for December at 9:45 a.m.
Prior to these upcoming catalysts, some analysts were suggesting that the recent market pullback has made stocks more attractive.
A Promising Risk/Reward Balance for SPX
According to Mark Newton, the head of technical strategy at Fundstrat, the recent decline in SPX may not be a significant one, but it is enough to address the overbought conditions in several sectors. Newton believes that this decline has made SPX a much better risk/reward opportunity compared to a few weeks ago. He also predicts that we are approaching short-term lows.