Economic data: S&P Global US Services PMI, December, final (48.4 expected, 48.2previously); MBA Mortgage Applications, week ending December 29
CURRENCIES:
U.S. Dollar’s Downward Correction
Witnessed a significant downward correction in the U.S. dollar due to expectations of the Federal Reserve reducing borrowing costs.
US Treasury yields plunged in the last quarter of 2023, contributing to the dollar’s lowest level in five months.
Currency and Precious Metal Performance
EUR/USD and GBP/USD experienced a notable surge, reaching multi-month highs in late December.
Gold prices showed strength, concluding 2023 above $2,000, though slightly below its all-time high.
The bullish trend in gold is expected to continue, benefiting from the Federal Reserve’s policy shift.
Equity Market Rally
The pullback in U.S. bond yields triggered a substantial rally in the equity market.
Major stock market indexes reached new records, reflecting the prevailing risk-on sentiment.
Outlook for Q1 2024
U.S. dollar may continue to face losses in the coming months due to downward-sloping yields.
Anticipated upward momentum for gold, EUR/USD, GBP/USD, and stocks in Q1.
Caution advised as some markets approach potential overbought conditions.
Increased Volatility and Trading Setups
Expect different market dynamics leading to heightened volatility.
Opportunities for enticing trading setups in major assets, including currencies, commodities (gold, silver, oil), and cryptocurrencies.
STOCK MARKET:
Fed Rate Cut Speculation:
Morgan Stanley’s Ellen Zentner suggests a possible Fed rate cut may come later than market expectations.
Zentner emphasizes that monthly payroll additions below 50,000, coupled with consistent low inflation, could trigger a March rate cut.
Caution is advised, highlighting that a single weak jobs report might not be sufficient for a rate cut decision.
Morgan Stanley’s Base Case:
The base case for Morgan Stanley remains a Fed cut in May, contrary to earlier market expectations.
Late 2023 Market Rally Impact:
Investors face the question of whether the late 2023 market rally accelerated the gains expected in 2024 or if there is room for further upward movement.
Ryan Detrick, Chief Markets Strategist at Carson Group, cites historical data indicating that after a late-year S&P 500 rally exceeding 10%, the benchmark average historically rose by an average of 19.5% in the following year.
Contrasting Views on Market Continuation:
Tom Lee, Fundstrat’s Head of Research, acknowledges the likelihood of new all-time highs for the S&P 500 but anticipates a subsequent consolidation.
Lee points out key concerns, including investor uncertainty about the Fed’s rate-cut timing and a potential downturn around February or March in an election year.
Tom Lee’s Market Outlook:
Lee predicts a brief pullback after new all-time highs, suggesting a range of S&P 500 at 4,400-4,500.
Consistent with the 2024 Year Ahead Outlook, Lee’s base case envisions most gains for the S&P 500 in the second half of 2024.
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