[Chart courtesy of MarketWatch.com]

1. Moving the markets 

The Nasdaq Composite led the market lower for the third consecutive day, extending its worst daily drop since October 2023. Investors seemed to lose their appetite for the tech darlings of last year, which had soared on hopes of a dovish fed in 2024. But with the economy still struggling and no clear signal from the central bank on when it will start cutting rates, the wall street mood turned sour.

The Fed’s latest meeting minutes, released on Wednesday afternoon, did not help matters. They revealed that the fed was still reluctant to lower rates, despite its surprising shift from hawkish to dovish on December 13. The minutes said:

Participants generally stressed the importance of maintaining a careful and data-dependent approach to making monetary policy decisions and reaffirmed that it would be appropriate for policy to remain at a restrictive stance for some time until inflation was clearly moving down sustainably toward the committee’s objective.

The only silver lining was that the fed officials expected three rate cuts this year, but they also admitted that there was a lot of uncertainty around the timing of these cuts. So much for clarity.

As ZeroHedge noted, this year’s plunge in stocks and bonds was the worst global start to the year since 1999 (and yesterday was the biggest daily loss in global market value since December 2022.)

The dollar defied the weak economic data and rallied for the second day in a row, posting its best start to the year since 1997. The ISM manufacturing index stayed in contraction territory (below 50) for the 15th straight month and job openings fell to a three-year low, dragging the Economic Surprise Index lower. Ouch!

It was a dismal day on wall street, with small caps taking the biggest hit (down almost 3%), the Nasdaq sinking further (down over 1%), and the Dow holding up relatively better.

The Mag7 barely budged, and the most shorted stocks tanked at the open and never recovered. The S&P 500 had its first two-day decline to start the year since 2015, while the Russell 2000 touched a crucial support level.

Bond yields spiked early on, but then reversed course in the afternoon with the 10-year briefly crossing the 4% mark before falling back. Oil prices surged by almost 4% due to escalating tensions in the middle east.

For the markets to bounce back, the fed needs to be more decisive, and global uncertainty needs to calm down.

Is that too much to ask?

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[Chart courtesy of MarketWatch.com]

1. Moving the markets 

The new year started with a sour note for stocks, as they continued their downward slide from the end of 2023.

Rising interest rates and profit-taking after a stellar 2023 weighed on the market, especially the Nasdaq, which suffered its worst drop in more than two months. Apple was among the biggest losers, as Barclays cut its rating on the tech giant to underweight, citing slowing growth and rising competition.

The Dow fared better, thanks to some defensive stocks like Johnson & Johnson and Merck that held up well.

The market had a strong rally in 2023, as the economy proved resilient and inflation eased, while the Fed signaled a pause in rate hikes and hinted at possible rate cuts later this year. But don’t hold your breath for that, as the economic outlook is still uncertain.

The latest data showed that US manufacturing activity contracted in December, with orders falling and prices rising, while construction spending also missed expectations. These signs of weakness were reflected in the Economic Surprise Index, which measures how the data compares to forecasts.

You would think that weak data would push bond yields lower, but the opposite happened. Yields jumped and the dollar strengthened, as the 10-year Treasury yield broke above 3-week highs.

The most shorted stocks had a wild ride, as they plunged, soared, and plunged again, all in one day. Who can make sense of that?

The dollar’s strength was bad news for gold, but the precious metal managed to limit its losses for the day.

Traders are keen to see how the first five trading days of the year play out. Historically, they have been a good indicator of how the year will end. A positive start means a positive finish, and vice versa.

This chart shows the correlation. So, will the market turn around or keep falling?

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[Chart courtesy of MarketWatch.com]

1. Moving the markets 

The S&P 500 barely budged today, but it was enough to inch closer to a new record high. Wall Street is hoping to end 2023 with a bang, after a stellar fourth quarter that erased the losses of the previous one.

The S&P is up 11.7% for the quarter, its best performance in three years, and the three major indexes are on track to post their ninth consecutive weekly gains.

But not everything is rosy in the market. Traders are betting on rate cuts and lower inflation in 2024, which may turn out to be wishful thinking. Today’s economic data was disappointing, with lower inventories, higher jobless claims, and weaker home sales.

The market was mixed, with small caps, cryptos, and oil losing ground, while the dollar, the Dow, and bonds yields rose. The Mag7 stocks managed to squeeze out a positive close, but junk bonds diverged from the S&P 500. Gold briefly hit $2,088 overnight, but couldn’t keep the momentum, as oil dropped below $72 and closed at its lowest in a week.

Some analysts are warning of a possible correction, especially if the S&P reaches $4,900. How deep and how long is anyone’s guess, but one thing is certain: volatility is waiting in the wings, ready to pounce. Will the market end the year with a whimper or a bang? Tune in tomorrow to find out.

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