Stocks Stall Ahead of Closely Watched Retail Sales in 2024 as a 'Tired' Market Stalls

In the early months of 2024, U.S. stocks are facing challenges in making significant advances. Investors are closely monitoring the initiation of company earnings reports by Wall Street banks and are vigilant about inflation, especially with an imminent retail-sales report on the horizon.

‍

Yardeni Research observed that both the stock and bond markets are in a holding pattern, suggesting that this trend might persist in the first half of the year. However, the firm anticipates a resurgence in stock market momentum during the latter part of the year.

‍

The S&P 500 index has been hovering around its all-time closing high, set more than two years ago. While it briefly surpassed this peak recently, the index concluded the session with a slight dip. Despite weekly gains, the overall performance for January has been marginal, leaving investors in anticipation. The Dow Jones Industrial Average (DJIA) and Nasdaq Composite (COMP) also experienced modest declines in the early part of 2024, despite recording weekly gains.

‍

Investors are eagerly awaiting the U.S. retail sales report for December, scheduled for release on Wednesday, to gauge the strength of consumer spending and its potential impact on the economy. Bob Doll, Chief Investment Officer at Crossmark Global Investments, notes that consumer spending might have decelerated in December compared to November, as individuals may no longer have the substantial savings accumulated during the pandemic.

‍

Doll predicts that the S&P 500 might conclude 2024 at 4,350, reflecting a 9% decline from its recent closing level. This projection is based on his expectation of lower-than-anticipated earnings growth for companies.

‍

As of Friday, the S&P 500 reached 4,783.83, its highest level since January 4, 2022, and only 0.3% below its record close on January 3, 2022. Doll expresses concerns about the index being fully valued, with a current price-to-earnings ratio of 20 that he deems unsustainable.

‍

The commencement of earnings season saw shares of major banks like JPMorgan Chase, Bank of America, and Wells Fargo declining after reporting fourth-quarter results. Goldman Sachs and Morgan Stanley are scheduled to release their quarterly earnings on Tuesday. UnitedHealth Group, reporting its fourth-quarter earnings, emerged as the worst-performing stock in the Dow Jones Industrial Average on Friday.

‍

The market is currently expecting what is colloquially termed a "trifecta," which involves the U.S. avoiding a recession, the Federal Reserve implementing around six interest-rate cuts by December, and inflation subsiding to the Fed's 2% target earlier than anticipated. Achieving all three simultaneously is considered a challenging prospect.

‍

Recent inflation data revealed a slightly larger increase than expected in the consumer price index, reaching a year-over-year rate of 3.4%. Despite concerns, some believe this puts the Federal Reserve closer to achieving its 2% inflation target, potentially leading to rate cuts. However, skepticism remains, with concerns that inflation may not decline as rapidly as hoped.

‍

The U.S. unemployment rate has remained historically low, providing support to the economy. Real wage growth, aided by lower gasoline prices, has positively impacted consumers' purchasing power. However, there are concerns about a potential undesirable rise in the unemployment rate in 2024, potentially reaching 5%, leading to a softer economic-growth environment.

‍

Portfolio positioning strategies are being adjusted accordingly. Aspiriant favors a balanced split between opportunistic and defensive equity bets while downplaying exposure to seven megacap tech stocks that fueled the S&P 500's significant gains in the previous year.

‍

In summary, the U.S. stock market is currently navigating uncertainties related to earnings reports, inflation, and consumer spending. While the first half of the year may witness a cautious market stance, some analysts anticipate a resurgence in the second half, contingent on various economic factors and corporate performance.