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Alex Kimani
Alex Kimani is a veteran finance writer, investor, engineer, and researcher for Safehaven.com.
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By Alex Kimani – Jan 03, 2024, 5:00 PM CST
- U.S. and European equity markets have kicked off the new year on the backfoot, with both pulling back slightly on the second trading day of 2024 from 2023 record high closes.
- The U.S. energy sector has started the year on a more positive note, with the sector’s benchmark Energy Select Sector Fund (XLE) up 2.1% in the first two trading days.
- The markets remain a bit edgy because of the uncertainty surrounding precisely when the Federal will start cutting rates.
U.S. and European equity markets have kicked off the new year on the backfoot, with both pulling back slightly on the second trading day of 2024 from 2023 record high closes.
The S&P 500 was down 60 points to 4,714 from its 2023 close at 1130 hrs ET on Wednesday while the Stoxx Europe 600 was also down marginally. Yields on 10-year US bonds and German bunds have also started creeping up, with the U.S. rate quoted at 3.956% as money markets wagered on the Federal Reserve cutting rates by fewer than 150 basis points in 2024.
Thankfully, the U.S. energy sector has started the year on a more positive note, with the sector’s benchmark Energy Select Sector Fund (XLE) up 2.1% in the first two trading days and Brent and WTI gaining over 3% on Wednesday.
Growing tensions in the Middle East have worsened fears of oil supply disruptions after an Iranian warship entered the Red Sea and raised the specter of the conflict spilling over into the region.
The markets remain a bit edgy because of the uncertainty surrounding precisely when the Federal will start cutting rates and also because the Fed has cautioned about the lingering possibility of a mild recession.
Market action suggests there’s an outside chance of a 25-basis-point cut at just 12.9% in January, but a much bigger 87.1% chance that the central bank will leave rates unchanged when it releases its December meeting minutes on Wednesday at 1400 hrs ET. Fed officials held the policy interest rate steady in the 5.25% to 5.5% range at their meeting in mid-December, but signaled they would cut rates by at least 75 basis points in the current year as inflation steadily declines to the Fed’s 2% target.
That said, equity markets remain largely bullish with Principal Financial Group predicting that 2024 is setting up to be the “year of the pivot.”
“Markets surprised to the upside in 2023, despite a host of challenges, and fought off a widely expected recession to finish the year near record highs. Looking ahead to 2024, the market rebound,