The S&P 500 ended its longest streak of weekly gains in two decades. It was different from how Wall Street hoped to start 2024.
Investors, who were charged and optimistic after a lively rally during the holidays, were confronted with the same concerns that dominated the previous year, including new questions about the Federal Reserve’s policy direction.

The S&P 500 fell for the first time in 10 weeks, ending the longest streak of gains in nearly 20 years. Treasury bonds and corporate credit saw their most significant decline since October.
The employment report from last Friday potentially further muddied the outlook. While one can’t draw too much from a few days of trading, these fluctuations again highlighted the dangers of overconfidence and optimism.

In contrast to the overall recovery in the last months of 2023, all major asset classes fell during the shortened holiday week.
Despite headwinds such as Apple downgrades, heavy corporate issuance, or risks to Chinese growth, investors’ complacent stance towards central bank policies was the primary driver of the downturn.
For 2024, swaps are betting on 137 basis points of rate cuts, compared to about 160 basis points before the correction. Even more concerning, these expectations still represent more than twice the Fed’s quarterly forecasts.
The reevaluation has pushed 10-year Treasury yields back up to 4%, retracing more than half of the decline since December 13, when Fed Chairman Jerome Powell laid the groundwork for monetary easing later this year.

However, there are positive factors. Analysts forecast nearly an 11% overall earnings growth rate for the S&P 500, reflecting double-digit gains in healthcare, industry, technology, and communication services companies. Large US companies are trading at 19.6 times these estimates, which is a high valuation but not unusual compared to recent years.

Another supportive factor for the US market could be stock buyback programs. US companies have hesitated to buy back their shares as the Federal Reserve raised interest rates to combat inflation. Buybacks declined for five consecutive quarters after reaching a record in 2022. With nearly $1 trillion per year, buybacks represent one of the biggest bullish forces in the market, especially in an uncertain environment. S&P 500 companies spent almost $800 billion on share buybacks in the past year, a drop of nearly 20% from the previous year’s period. Companies are expected to spend at least $840 billion on buybacks in 2024, according to preliminary data from S&P Dow Jones indices.