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Financial Market Update – Week of 01/08

January 8, 2024

 Major U.S. stock indexes took a breather to start the year, breaking a nine-week winning streak, while labor market data continued to impress.

Potential tax selling by investors in the new year (thus avoiding the tax bill until April 2025) could also have been in play during the first trading week of the year.

Tallying last week, the S&P 500 fell by 1.52%, the Nasdaq 100 declined by 3.09%, and the Dow Jones Industrial Average decreased by 0.59%.

Payrolls Strong

The United States economy added 216,000 new jobs in December, which is greater than the majority of economists’ predictions near 170,000. The result was the largest monthly increase in three months. 

The unemployment rate remained unchanged at 3.7%. In total, the economy produced 2.7 million jobs in 2023, with an average monthly gain of 225,000.

Once again, government job creation led the way, with leisure and hospitality/health care coming in second and third.

Treasury Yields Bounce 

The 10-year yield finished near 4.043% last week, 17-18 basis points higher than the prior weekly close, and crossing the 4% level to the upside for the first time since early December. Remember, yields tend to rise along with interest rates on a variety of products.

With so much talk of lower interest rates in 2024, it only made sense that rates finally edged up a bit. Expectations for lower interest rates had perhaps gotten a bit giddy.

And remember, we were just approaching 5% yields on tens back in October, and falling to 4% so quickly was welcome news for investors. While the consensus is for lower interest rates in 2024, some analysts have other opinions. 

One Wall Street forecaster, Jim Bianco, sees 10-year yields moving to 5.5% in 2024 — talk about contrarian. Could he be right?

Part of Bianco’s forecast includes the Fed cutting rates three times this year, which is what the Fed has broadcasted versus the market’s pricing in six rate cuts in 2024.

The most recent rhetoric from the Fed is that rate cuts are likely, but the path to them is highly uncertain.

The market expecting six rate cuts in 2024 may be ahead of itself, barring a major recession. Market bulls were tamed somewhat last week on the December Fed meeting minutes. You can read the full minutes here.

Looking Ahead

Investors are digesting an incredible end to the year in 2023 and looking for the next narrative to form early in 2024.

Thursday, we get a look at consumer inflation for December, after inflation rose at a 3.1% year-over-year rate in November, down from 3.2% in the previous month.

Core inflation (which excludes volatile food and energy) will be on the minds of traders and investors, as it rose 4.0% in November.

Since 4.0% core inflation may be a little high for the Fed’s liking, markets are eager to see if the inflation moderation continued into December and how it could affect Fed rate hike probabilities. 


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