Stocks ended 2023 on a historic winning streak.
The S&P 500 (^GSPC) enters the new year after rising for nine straight weeks, its longest streak of consecutive weekly gains since 2004.
The first week of trading in 2024 will immediately test the rally as a key December jobs report is scheduled to be released on Friday morning. The economic calendar also includes Federal Reserve meeting notes, the latest job vacancies update and new data on manufacturing and services sector activity.
On the company page, Cal-Maine Foods quarterly reports. (CALM), Walgreen Boots Alliance (WBA) and Constellation Brands (STZ) point to a sparse week of corporate results. Electric vehicle maker Tesla (TSLA)'s quarterly delivery numbers are also being closely watched by Wall Street.
Trading is scheduled to resume on Tuesday after markets close on Monday for New Year's Day.
A stormy two-month rally took several of the major indexes to or near all-time highs late last year. The Dow Jones gained 13.7%, or more than 4,500 points, in 2023 and broke the 37,000 mark for the first time ever. The S&P 500 gained 24%, putting the major average within striking distance of its record closing price of 4,796.56. Meanwhile, the Nasdaq Composite (^IXIC) gained 43.42%, its best annual return since 2020.
Increasing bets that the U.S. economy could achieve the vaunted “soft landing” – in which inflation returns to the Fed's 2% target without a recession – fueled the stock market rally through the end of 2023. An important part of this narrative was that the job market has held up more than many expected.
Notable parts of this action include an unemployment rate hovering near the level seen at the start of the Fed's rate-hiking cycle, the jobless-to-jobs ratio hitting its lowest level in more than two years, and minimal increases in layoffs , as observed by weekly jobless claims.
To some economists, this all points to a labor market that is slowing enough that consumers are not flooding with money to drive up inflation, but is also not weak enough to trigger a recession.
The story goes on
The forecasts for the December jobs report reflect a similar picture. The report is expected to show that 168,000 nonfarm jobs were added to the U.S. economy last month as the unemployment rate rose according to Bloomberg data to 3.8%. In November, the US economy added 199,000 jobs while the unemployment rate unexpectedly fell to 3.7%.
“We do not expect a sharp decline in employment yet, but remain cautious heading into 2024,” the Jefferies economic team led by Thomas Simons wrote in a research note on Friday. “With the UAW strike finally behind us, we expect the volatility in manufacturing payrolls that we have seen in recent months to moderate.”
Markets are starting the new year betting that the Fed will cut interest rates in March. Investors on Tuesday estimated an 82 percent chance of a rate cut by the end of the March meeting, according to the CME FedWatch tool.
However, there is no consensus among economists on this expectation. For Morgan Stanley's chief U.S. economist Ellen Zentner, for the market's current forecast for a cut in March to materialize, data like December's jobs report will need to point to more signs of a slowdown than are currently being presented.
“Resilient labor markets with a slight downward trend also suggest that cuts will begin later than markets expect,” Zentner wrote in a Dec. 19 research note.
Zentner expects monthly wage gains would need to fall below 50,000 by the February report, coupled with continued low inflation, for the Fed to make cuts in March. And even then, the decline in employment would have to be a trend and not a low value.
“Nonfarm payrolls are strong, so we don't think one weak report will be enough to trigger a rate cut,” Zentner said of the jobs reports.
Morgan Stanley's base case remains that the Fed's first rate cut will come in May.
Federal Reserve Chairman Jerome Powell at a press conference in Washington, DC on December 13, 2023. (Liu Jie/Xinhua via Getty Images) (Xinhua News Agency via Getty Images)
Broadly speaking, one of the biggest questions for investors will be whether the rally in late 2023 simply pushed back the timeline for gains investors expected in 2024, or if the market needs to go further above its current all-time high.
Ryan Detrick, chief market strategist at Carson Group, points out that history supports stocks continuing to make gains in 2024.
In years where November and December brought an S&P 500 rally of more than 10%, which happened as recently as late 2023, the benchmark average rose an average of 19.5% over the next year Detrick's research.
But even some of the market's biggest bulls have recently noted that those gains are unlikely to come at a steady upward pace. Fundstrat research director Tom Lee, who has one of the highest targets for the S&P 500 next year at 5,200, expects the major average to fall in early 2024.
“It's just a matter of days for us to hit new all-time highs [for the S&P 500]” Lee wrote in a note to customers on Friday. “But then we will probably consolidate.”
Lee believes some key concerns could weigh on markets. He thinks investors could get it It is “itching” when the Fed will cut interest rates, noting that a February or March downturn is typical in an election year.
“In the current context, we could see an S&P 500 of 4,400 to 4,500 once we reach all-time highs, or a slight decline,” Lee wrote. “This is consistent with our 2024 outlook, where our base case is that the S&P 500 delivers most of its gains.” [the second half of 2024].”
Weekly calendar
Monday
The markets are closed for the New Year holidays.
Tuesday
Merits: Nothing special
Economic data: S&P Global US Services PMI, December, final (48.4 expected, 48.2 previous); MBA Mortgage Applications Week Ending December 29th
Wednesday
Merits: Cal-Maine Food Groups (CALM)
Economic data: JOLTS job openings, November (8.85 million expected, 8.73 million previous); ISM Manufacturing, December (47.2 expected, 46.7 prior); ISM prices paid, December (was 49.9); FOMC meeting minutes
Thursday
Merits: Conagra Brands (CAG), LambWeston (LW), Walgreens (WBA)
Economic data: ADP employment change, December (113,000 expected, 103,000 prior); Challenger job cuts, year-over-year, December (-40.8% previous); Weekly initial jobless claims, December 30 (previously 218,000); S&P Global US Composite PMI, final December (previously 51);
Friday
Merits: Constellation marks (STZ)
Economic data: Non-farm payrolls, December (+168,000 expected, +199,000 previous); Unemployment rate, December (3.8% expected, previously 3.7%); Average hourly wage month-on-month, December (+0.3% expected, +0.4% previous); Average hourly wage year-on-year, December (+3.9% expected, +4.0% previous); Average weekly hours worked, December (34.4 expected, 34.4 previous); Labor force participation rate, December (62.8% expected, previously 62.8%); Factor Orders, November (+2.1% expected, -3.6% previous); Durable Goods Orders, November (+5.4% previous); ISM Services, December (52.5 expected, 52.7 expected)
Josh Schafer is a reporter for Yahoo Finance.
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