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Investors are heading into next week on edge as stocks struggle to start the year, with key inflation data and big bank earnings on deck. The major averages kicked off 2024 with a whimper. The S & P 500 on Friday snapped its best weekly winning streak going back to 2004. The Nasdaq and Dow Jones Industrial Average registered their first weekly loss in 10 weeks. Market choppiness is typical at the start of a new year. But a couple of Apple downgrades have investors concerned stocks are overbought after their recent rally, while a strong jobs report on Friday muddied the outlook for interest rates. Apple shares slumped roughly 6% this week. The 10-year Treasury yield topped 4%. AAPL YTD mountain Apple Wall Street will have further hurdles to clear next week. A hot consumer inflation reading, after this week’s better-than-expected payrolls number, could further dampen investor sentiment — especially as markets have priced in more rate cuts than the Federal Reserve has indicated. “For now, the name of the game is patience. Rate cuts are still the table, but investors will probably have to wait until the second half of the year,” Chris Larkin, managing director at E-Trade from Morgan Stanley, wrote on Friday. “And the Fed has made clear it’s prepared to go the other direction if it thinks inflation is on the rise again,” he added. ‘All goes back to inflation’ Typically speaking, inflation readings take a backseat to the jobs report in terms of market significance. That hasn’t been the case over the past year, though, as investors try to ascertain how a data-dependent Fed will proceed as it works to bring inflation down to its 2% target. The December consumer price index that’s set for release Thursday is expected to confirm the recent trend of easing inflation. Economists polled by FactSet expect headline CPI to have risen by 0.15% last month, more than the 0.1% rise in the month prior. But core inflation, which excludes volatile food and energy prices, is expected to have risen 0.25%, down from the 0.3% increase in the prior month. Joe Kalish, chief global macro strategist at Ned Davis Research, thinks an inflation reading that comes in hotter than expected will be poorly received by markets. He also urged investors to keep a careful eye on oil prices, which have been moving higher over the last several days amid conflict in the Middle East. On Wednesday, oil prices spiked more than 3%. “We saw inflation expectations coming down on the back of lower oil prices. And so, if events start moving the other way, that’s also going to maybe call into question this narrative, ‘Oh, inflation is coming down, it’s gonna hit the Fed’s target,'” Kalish said. “So that, again, all goes back to inflation.” @CL.1 YTD mountain West Texas Intermediate Earnings season begins Big bank earnings will kick off the start of the latest corporate earnings season at the backend of next week, with Bank of America , Citigroup , JPMorgan Chase and Wells Fargo all reporting on Friday. This week, JPMorgan shares hit record highs after Goldman Sachs called it a top 2024 banking pick. Dow component UnitedHealth reports next week, along with Delta Air Lines and BlackRock . However, Wells Fargo’s Christopher Harvey on Friday wrote that early indications suggest this earnings season will be “a mostly negative catalyst.” He pointed out that 12 of the 20 S & P 500 members that reported fourth-quarter earnings thus far have posted a negative one-day reaction; all 20 stocks averaged a 1.3% drop. For example, Walgreens dropped 5.1% on Thursday, citing challenges from consumer pressures. ‘A Down January’ As it is, market observers expect near-term pressures will continue for equities, with megacaps lagging as performance broadens out to the other 493 stocks in the S & P 500. In fact, the lack of a Santa Claus Rally this year raises the risk of “a down January,” according to Bank of America Securities’ Stephen Suttmeier. First identified by the Stock Trader Almanac’s founder Yale Hirsch, the Santa Claus Rally refers to the market’s propensity to outperform in the final five trading days of one year and the first two trading days of the next. Since 1929, the S & P 500 is higher 62% of the time, and averages a 1.2% gain. “However, when the SPX does not experience its Santa rally, the risk increases for a down January with the month down 55% of the time on an average return of -0.38% (-1.3% median),” Suttmeier wrote on Thursday. “January has plenty of trading days left, but a down January would generate a bearish January Barometer signal for 2024.” Still, many market observers remain optimistic that stocks will continue to drift upward after the consolidation, even if they don’t rally to the same degree as they had last year. These observers urge investors to remember that rate cuts are coming, even if there may not be as many as markets are expecting. “Thematically, I think it’s healthy the market’s broadening out,” said Art Hogan, chief market strategist at B. Riley Financial. “I think it’s okay that people are trimming positions in the seven most loved stocks in the Nasdaq of last year, and looking for opportunities of things that didn’t perform last year.” Many market observers expect that means traders should add exposure to small caps, citing the valuation gap between small and large cap stocks, as well as many of last year’s market laggards. In fact, Nicholas Galluccio, portfolio manager at the Teton Westwood SmallCap Equity Fund, said he anticipates small caps will outperform large caps over the next three years. Elsewhere, Fundstrat’s Tom Lee recently told CNBC he expects small caps will surge 50% over the next 12 months. “We’ve seen a major shift,” Galluccio said. “The long awaited great rotation from large cap growth into value and small cap arrived with a vengeance at the end of the year. And that should continue.” The small cap Russell 2000 has soared 13% over the past three months. However, it’s down more than 3% to start 2024. Week ahead calendar All times ET. Monday Jan. 8 3 p.m. Consumer Credit (November) Tuesday Jan. 9 6 a.m. NFIB Small Business Index (December) 8:30 a.m. Trade Balance (November) Wednesday Jan. 10 10 a.m. Wholesale Inventories final (November) 3:15 p.m. New York Federal Reserve Bank President and CEO John Williams gives keynote remarks for “2024 Economic Outlook”, New York. Thursday Jan. 11 8:30 a.m. CPI (December) 8:30 a.m. Hourly Earnings final (December) 8:30 a.m. Average Workweek final (December) 8:30 a.m. Initial Claims (week ended Jan. 6) 2 p.m. Treasury Budget (December) Friday Jan. 12 8:30 a.m. PPI (December) Earnings: Citigroup , Wells Fargo , JPMorgan Chase , Bank of America , Delta Air Lines , The Bank of New York Mellon , UnitedHealth Group , BlackRock
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