The first week of 2024 proved to be a wild ride for U.S. stock indexes, as investors navigated through a topsy-turvy session that ultimately closed marginally higher. Despite the small gains, the S&P 500 and Nasdaq Composite experienced their worst weekly performance in months. Uncertainty surrounding interest rate cuts and mixed macroeconomic data played a significant role in the market’s volatility.
Traders and investors witnessed the first weekly declines for all three benchmarks in ten weeks. The S&P 500 dropped 1.54%, the Nasdaq Composite slumped 3.26%, and the Dow Jones Industrial Average dipped 0.59%. These losses marked the worst weekly performance for the S&P 500 since late October and the worst week for the Nasdaq since late September.
The cautious sentiment at the beginning of 2024 stemmed from investors’ desire for further clarity on interest rate cuts. The expectation of a swift pace of easing had led to a blistering rally in the final weeks of 2023, almost reaching the S&P 500’s all-time high. Any news undermining this hypothesis triggered profit-taking among investors.
According to Greg Boutle, head of US equity and derivative strategy at BNP Paribas, the market correction observed was likely a healthy adjustment for an overbought market at the end of the previous year. However, the uncertainty surrounding interest rate cuts and the mixed macroeconomic data created an environment of volatility and fluctuating investor sentiment throughout the day.
Mixed Macroeconomic Data
Friday’s session saw markets gyrate as investors digested the latest macroeconomic data. Initially, robust jobs data from the Labor Department painted a positive picture, showing that U.S. employers had hired more workers than expected in December. This dampened expectations of rapid interest rate cuts, leading to lower futures.
However, a survey from the Institute for Supply Management (ISM) revealed a decline in activity in the services sector in December, pointing to a weaker economy. This encouraged those who were betting on rapid easing, causing markets to rally throughout the morning and afternoon.
The Impact of Data Releases
While the macro data presented a mixed picture, Boutle suggested that this week’s data releases were unlikely to have convinced anyone to change their stance on rate cuts at the beginning of the year. Currently, traders see a 66.4% chance of at least a 25-basis point cut in March, according to the CME Group’s FedWatch tool. The yield on the benchmark U.S. Treasury 10-year note finished the week at 4.05%, reflecting interest rate expectations.
Leading Sector Gainers
Despite the market volatility, the financials index emerged as a leading sector gainer among the S&P 500 sectors. It rose by 0.5%, with banks continuing to perform well ahead of the start of earnings season next week. Large regional banks such as Zions Bancorporation, Citizens Financial Group, and Comerica Inc saw gains between 2.6% and 3.3%, contributing to the 1.3% increase of the S&P Banks index, which reached an 11-month high.
A Winning Finish
After a day of undulations and uncertainty, the three benchmarks managed to eke out a winning finish – their first positive sessions of 2024 for the S&P and Nasdaq. The S&P 500 gained 8.56 points, or 0.18%, to end at 4,697.24 points, while the Nasdaq Composite gained 13.77 points, or 0.09%, to 14,524.07. The Dow Jones Industrial Average rose 25.77 points, or 0.07%, to 37,466.11.
Notable Movers
While many stocks were affected by the market’s ups and downs, a few notable movers stood out. Applied Therapeutics tumbled 40.6% following disappointing results in a late-stage trial for its heart disease drug. Jefferies downgraded Palantir Technologies by 1.7% due to high stock valuations. On the other hand, Peloton jumped 9.6% after announcing an exclusive partnership to bring its workout content to the short-form video platform TikTok.
The first week of 2024 proved to be a roller coaster ride for U.S. stock indexes. The market experienced significant volatility as investors grappled with uncertainty surrounding interest rate cuts and interpreted mixed macroeconomic data. Despite closing marginally higher, this week marked the worst performance in months for the S&P 500 and Nasdaq Composite. As the year progresses, market participants will continue to closely monitor economic indicators and central bank decisions for clues to navigate the unpredictable terrain of the stock market.
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