Markets sold off to the start the year with the S&P dropping 1.5% while the NASDAQ declined 3.2%
What Does it Mean?
We’re not that surprised by the early year sell off considering how 2023 ended with such a strong finish. If our firm is anecdotal, investors did not want to create any additional tax liabilities for 2023 by booking gains before year-end. Under this thesis, in our opinion, it makes sense that the NASDAQ fell further than the S&P, due to the index’s outperformance the previous year.
Why Do we Care?
In our opinion, healthy bull markets should not go straight up. We also believe pull backs are a sign of sellers taking profits and give us the ability to see if new buyers emerge. Should the markets have gone straight up to start the year we would have been suspect and quite concerned.
We remain optimistic for 2024 and pullbacks will be helpful in once again building the skepticism needed to keep folks on the sideline. Only when pullbacks are bought up on a consistent basis will those gun-shy investors throw caution to the wind and begin to chase. I continue to feel that we’re a long way from that environment.
What Happened: Initial Jobless Claims are reported below expectations.
What Does it Mean?
In our opinion, the fact that less people are filing for unemployment gives further evidence of a soft landing. Unfortunately, we believe this also may insinuate that inflation will remain quite sticky due to strong consumer demand and sparked a subtle rise in interest rates.
Why Do we Care?
We honestly do not. The short-term indicators surrounding employment, especially during year-end and the Holiday season are not very meaningful for us and in my opinion don’t lend much credibility to inflation or the state of the general economy. Should this persist, however we would be quite surprised as we see an economic backdrop that is slowly eroding, not strengthening. Our thesis on strong stocks into 2024 is built upon a decline in interest rates and not the other way around. Should employment numbers continue to remain firm or even strengthen, we believe this may become more of a headwind for stocks than a tailwind.
Until next time
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