News

U.S. Equity-Index Futures Continue to Decline

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Andrew R. Michaud

• January 03, 2024

U.S. equity-index futures are once again lower following a sell-off in high-flying technology stocks. There are concerns that the recent rally in the market has been too fast and may have gone too far.

Stock-Index Futures Trading

• S&P 500 futures (ES00, -0.18%) have dipped 9 points, or 0.2%, to 4778
• Dow Jones Industrial Average futures (YM00, -0.13%) have fallen 55 points, or 0.1%, to 37938
• Nasdaq 100 futures (NQ00, -0.30%) have eased 56 points, or 0.3%, to 16664

Tuesday's Performance

On Tuesday, the Dow Jones Industrial Average (DJIA) rose 26 points, or 0.07%, to 37715. The S&P 500 (SPX) declined 27 points, or 0.57%, to 4743, and the Nasdaq Composite (COMP) dropped 245 points, or 1.63%, to 14766.

Traders appeared cautious early Wednesday as they analyzed the reasons why many of 2023's big winners had a rough start to the new year.

"The first day of trading in the new year saw global markets falter as investors took time for reflection after an exciting end to 2023," said Richard Hunter.

The Nasdaq Composite Index (COMP), which is heavily weighted with technology stocks, had a remarkable surge of 43% last year, with a significant portion of the gains happening in the last two months. This was driven by investors betting on easing inflation and expecting the Federal Reserve to quickly cut borrowing costs in 2024.

Hopes for companies like Microsoft (MSFT) and Nvidia (NVDA) to benefit from AI adoption also fueled the rally.

However, on the first trading day of this year, the Nasdaq Composite (COMP) experienced its largest drop in over two months, shedding 1.6%. The broader S&P 500 (SPX) also fell by 0.6%.

The cause of the pullback is still being debated as the new session progresses.

Market Sentiment Remains Tense as Geopolitical Tensions Rise

Apple's Downgrade
A recent downgrade of Apple, the market's largest constituent, from neutral to underweight by Barclays, has impacted market sentiment. This downgrade has sparked concerns about stretched valuations in the big-tech sector and has raised questions about an overbought market following a nine-week winning streak.

Geopolitical Concerns
Investors have also been affected by geopolitical tensions, including fears of naval conflict in the Red Sea and the recent assassination of a senior Hamas leader in Lebanon. These ongoing issues have contributed to a heightened sense of unease in the market.

Wary of Rising Treasury Yields
Investors are cautious about the increasing Treasury yields, which continue to rise. The 10-year note, for example, recently reached 3.985%, up from 3.80% just last week. This rise in yields reflects growing skepticism about the Federal Reserve's likelihood of implementing near-term interest rate cuts.

Analyst Henry Allen from Deutsche Bank explains that while investors are still anticipating a Q1 rate cut, doubts have emerged over whether the aggressive rate cuts expected in 2024 will actually materialize.

Focus on Federal Reserve's Policy Trajectory
In light of the Federal Reserve's policy trajectory, investors are eagerly awaiting the release of minutes from its December meeting at 2 p.m. Eastern. Prior to that, Richmond Fed President Tom Barkin is scheduled to speak at 8:30 a.m.

Upcoming Economic Updates
Several U.S. economic updates are set to be released on Wednesday, including the job openings (JOLTS) survey for November and the December ISM manufacturing report. Both reports are due at 10 a.m. Eastern.

Stay tuned for further market developments as investors navigate these challenging circumstances.