The U.S. stock market concluded on a high note in 2023, witnessing the S&P 500's impressive climb for nine consecutive weeks, marking its most remarkable weekly winning streak since 2004. During this period, risk assets surged due to the resilient economy, cooling inflation, and indications from the Federal Reserve signaling an end to rate hikes, alongside predictions of forthcoming rate cuts later in the year. Amid these positive movements, the market navigated challenges such as a regional banking crisis and ongoing conflicts in Ukraine and the Middle East.
That trend was reversing on Tuesday as the new year of trading began with those same stocks declining in early trading. Apple (AAPL.O) experienced a 3.58 percent drop following Barclays' downgrade of the tech giant to "underweight," citing a decline in iPhone demand. Other major companies such as Nvidia (NVDA.O) and Microsoft (MSFT.O) also saw declines of 2.73 percent and 1.37 percent, respectively.
The Dow Jones Industrial Average inched up 25.50 points, or 0.07 percent, to 37,715.04 on Tuesday. The S&P 500 decreased 27.00 points, or 0.57 percent, to 4,742.83. The Nasdaq Composite Index sank 245.41 points, or 1.63 percent, to 14,765.94.
Six of the 11 primary S&P 500 sectors ended in green, with health and utilities leading the gainers by adding 1.76 percent and 1.38 percent, respectively. Meanwhile, technology and industrials led the laggards by dropping 2.58 percent and 0.95 percent, respectively.
Tuesday's losses put the Nasdaq on track for its worst day since October. "The losses right now are in tech, which was the biggest winner last year. It's not shocking that they came down a little," said Joe Saluzzi, co-manager of trading at Themis Trading. "What we saw in December was kind of a sloppy rally where people seem to be wanting to put things on their books or cover shorts. That rally lasted a little bit too long."
S&P also released U.S. manufacturing purchasing managers' index (PMI) on Tuesday, which fell to 47.9 points in December, down from 49.40 in November and a preliminary reading of 48.2. Although it's widely anticipated that the Fed will maintain its rates during its January meeting, traders are pricing in a nearly 70 percent likelihood of a 25-basis point reduction in March, as per the CME Group's FedWatch tool.
Stocks tend to do well over monetary easing cycles, according to Ned Davis Research. "Equities, as represented by the S&P 500, have never rallied more than 11 percent in the three months leading up to the first Fed rate cut. On average, performance has been pretty flat," Joe Kalish, chief global macro strategist at Ned Davis Research, said on Tuesday. "But after the rate cut, stocks tend to rally for 6-7 months with a mean gain of roughly 12 percent."
According to FactSet market aggregates, 55 percent of strategists expect the S&P 500 to generate positive results in 2024, with an average estimate of a 7.5 percent year-over-year gain. Bank of America also said Tuesday its Sell Side Indicator, a broader market gauge, was the most bullish in one and a half years at 54.6 percent, in line with its 15-year average.
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