Wall Street enters 2024 with its foot on the gas, buoyed by a nine-week winning streak for the S&P 500 that propelled the index to record highs. But the party hats haven’t even gone flat yet, and a crucial jobs report on Friday looms, threatening to cast a cold shower on the festivities.
The December employment data will be the first major test of the “soft landing” narrative, that sweet spot where inflation cools without triggering a recession. A robust jobs report could fuel inflation fears and send jitters through the market, while a weak one might raise concerns about an impending economic slowdown.
Economists expect 168,000 nonfarm payrolls added last month, with the unemployment rate nudging up to 3.8%. These figures, while still positive, would signal a cooling trend compared to November’s strong showing. However, investors have been betting on an even softer landing, with markets pricing in an 87% chance of a Fed rate cut by March.
But not everyone is on board with the early-cut train. Morgan Stanley’s chief US economist, Ellen Zentner, believes data like the December jobs report needs to show more significant cooling before the Fed pulls the trigger. She sees payroll additions falling below 50,000 by February, coupled with consistent low inflation readings, as the prerequisites for a March cut.
Adding to the uncertainty, some market veterans warn of a potential correction following the late 2023 rally. Fundstrat’s Tom Lee, a bullish voice, predicts a pullback after new highs are reached, possibly in February or March, citing investor jitters around rate cuts and historical election-year trends.
So, where does this leave us? The first week of 2024 will be a crucible for the market’s optimism. The December jobs report, Fed meeting minutes, and corporate earnings could either solidify the bull run or trigger a reality check.
For traders, buckle up. It’s going to be a bumpy ride, with both upside potential and downside risks to navigate. Keep your eyes glued to the data, listen to diverse interpretations, and stay nimble to adjust your strategies as the narrative unfolds. Remember, in the volatile world of Wall Street, even the hottest rallies can cool off in a hurry.
Key Takeaways:
- S&P 500 enters 2024 with record highs but faces a December jobs report test.
- Soft landing hopes fuel rate cut expectations, but economists like Zentner call for caution.
- Market bulls like Lee predict a pullback after new highs, citing potential jitters.
- Traders need to be data-driven, flexible, and ready for a potentially volatile first week.
Weekly calendar
Monday
Markets are closed for the New Year’s holiday.
Tuesday
Earnings:
Economic data: S&P Global US Services PMI, December, final (48.4 expected, 48.2previously); MBA Mortgage Applications, week ending December 29
Wednesday
Earnings: Cal-Maine Food Groups (CALM)
Economic data: JOLTS Job Openings, November (8.85 million expected, 8.73 million previously); ISM Manufacturing, December, (47.2 expected, 46.7 previously); ISM prices paid, December (49.9 previously); FOMC meeting minutes
Thursday
Earnings: Conagra Brands (CAG), LambWeston (LW), Walgreens (WBA)
Economic data: ADP employment change, December (113,000 expected, 103,000 previously) Challenger jobs cuts, year-over-year, December (-40.8% previously); Weekly initial jobless claims, December 30 ( 218,000 previously) S&P Global US Composite PMI, December, final (51 previously);
Friday
Earnings: Constellation Brands (STZ)
Economic data: Nonfarm payrolls, December (+168,000 expected, +199,000 previously); Unemployment rate, December (3.8% expected, 3.7% previously); Average hourly earnings, month-over-month, December (+0.3% expected, +0.4% previously); Average hourly earnings, year-over-year, December (+3.9% expected, +4.0% previously); Average weekly hours worked, December (34.4 expected, 34.4 previously); Labor force participation rate, December (62.8% expected, 62.8% previously); Factor orders, November (+2.1% expected, -3.6% previously); Durable goods orders, November (+5.4% previously); ISM Services, December (52.5 expected, 52.7 previously)
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