CWS Market Review – January 9, 2024

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Wall Street Gets Off to a Slow Start for 2024

The stock market is off to a somewhat slow start this year. Last week, the S&P 500 snapped a nine-week winning streak. The index has now closed lower in five of the past seven sessions.

In reality, the current market action is closer to how we should expect markets to act, at least in the near-term. What was unusual about this market was the furious rally that closed out last year.

As late as mid-October, last year was looking to be a fairly standard year for investors. However, once it became clear that the Fed was done with its interest rate hikes, stocks started to rally. In less than two months, the S&P 500 jumped 16%.

As we got to the finish line for 2023, many of those prominent growth stocks and riskier “high-beta” stocks lagged the market. This trend lasted into the first few days of 2024 but has since reversed.

Q4 Earnings Season Is About to Begin

There are two events to look out for this week. The first will be on Thursday when the government releases the inflation report for December. For the most part, inflation has been better behaved, but I don’t want to call victory too soon. Older investors will remember how inflation kept coming back in the 1960s and 70s. In fact, each peak got progressively higher.

The other event will be the start of Q4 earnings season. This is unofficial, but on Friday, several major Wall Street banks and financial institutions will tell us how well they did during the final quarter of 2023.

Some of the financial institutions due to report on Friday include Bank of America (BAC), Bank of New York Mellon (BK), BlackRock (BLK), JPMorgan Chase (JPM), Citigroup (C) and Wells Fargo (WFC).

Overall, this looks to be a rather sluggish quarter for earnings growth. According to the latest numbers, Wall Street expects Q4 earnings growth of 1.82% for the S&P 500. That’s down from 2.85% from one month ago.

Within industry sectors, analysts expect 15.80% growth from Consumer Discretionary. That’s up from 13.52% from one month ago. For Tech, analysts have raised their estimate from 14.74% growth from one month ago to 15.08% now.

The big loser is the Energy sector. Profits for Energy are expected to fall 26.94%. As bad as that is, it’s dropping. One month ago, analysts had been expecting Energy’s profits to fall by 23.42%.

The first of our Buy List stocks to report will probably be in about two weeks. I’ll caution you that companies often need a little more time to compile their Q4 earnings reports compared with the other three quarters.

Don’t get worried if a company needs a little extra time. If a company reports its Q1 earnings on, let’s say, April 27, you can most likely expect its other earnings to be around July 27 and October 27, but the Q4 report may be a week or so after January 27.

The U.S. Economy Added 216,000 Jobs in December

Last Friday, the government said that the U.S. economy added 216,000 net new jobs last months. That was much better than expectations. Wall Street had been looking for an increase of 170,000 new jobs. The unemployment rate held steady at 3.7%. Wall Street had been expecting it to rise to 3.8%.

While the jobs numbers for December were decent, the jobs gains for October and November were revised lower to 173,000 and 105,000, respectively.

The U-6 rate, which is a wider measure of joblessness, increased to 7.1%. The labor force participation rate (LFPR) fell 0.3% to 62.5%. That number is now at its lowest point since February.

The labor force participation rate had been improving for several months. The problem with the LFPR is that it can be distorted by demographic factors. For example, more retirees will drive down the LFPR. If we look at it just for folks in the prime working-age category (25 to 54), then the LFPR is close to a 20-year high.

Perhaps the most important stat in the jobs report is average hourly earnings. Last month, average hourly earnings rose by 0.4%. That’s good, but I hope to see better. Over the last year, average hourly earnings are up by 4.1%. The problem is that so much of the wage gains have been eaten up by inflation.

One of the problems with this jobs report is that the job gains have been concentrated in a few areas while important sectors of the economy have actually seen job losses:

The December hiring boost as reflected in the Labor Department report came from a gain of 52,000 in government jobs and another 38,000 in health care-related fields such as ambulatory health-care services and hospitals. Leisure and hospitality contributed 40,000 to the total, while social assistance increased by 21,000 and construction added 17,000. Retail trade grew by 17,000 as the industry has been mostly flat since early 2022, the Labor Department said.

On the downside, transportation and warehousing saw a loss of 23,000.

For the year, the U.S. economy added 2.7 million jobs. That’s a noticeable drop off from 4.8 million in 2022.

The Federal Reserve meets again at the end of this month, and again, I don’t expect to see any changes to interest rates. The March meeting is a different story. Currently, the futures market thinks there’s a 64% chance that the Fed will cut rates. That’s down a bit from the odds before the jobs report.

Later this month, we’ll get the initial report on Q4 GDP growth. The Atlanta Fed’s GDP Now model said that the economy grew at a real, annualized rate of 2.2% for Q4.

The End of the Month Effect

One of my peculiar habits is that I maintain a very large database of historical market stats. For example, I have every closing for the Dow Jones Industrial Average since the index was birthed in 1896. That’s more than 30,000 data points.

At the end of each year, I update all the numbers. I then slice and dice the numbers several different ways to see how the market has performed historically. (I know…I need a better hobby.)

Today I wanted to share with you one of the more fascinating results I got which is the end-of-the-month effect. Very simply, all of the stock market’s gains over the last 13 decades have come on the first and last days of each month. The rest of the month has been net flat.

Make no mistake. I’m not advocating for some kind of trading strategy to try and profit from the end-of-the-month effect. I’m still a buy-and-hold guy, but I find the effect fascinating.

I took all the numbers and squished them together to show you what the average month has looked like for the DJIA since 1896. Here it is:

I used the days of January as a placeholder for the horizontal axis, and I started the series at 100 at the start of the month. On average, the Dow has gained 0.650% each month.

During the first six days of the month, the Dow has had an average gain of 0.615%. During the rest of the month, the Dow has eked out a miniscule 0.035%.

If we dig a little further, we see that the Dow has lost an average of 0.216% by investing from the 6th to the 25th of each month. That’s roughly one-third of the entire monthly gain. From the 25th to the 6th, the Dow has gained an average of 0.867%.

What causes this? I’m not certain, but I’d guess that that’s when investors have gotten new money to add to stocks. It’s amazing that 130 years of data shows such a large impact from the calendar.

That’s all for now. The stock market will be closed on Monday in honor of Dr. Martin Luther King’s birthday. He would have been 95 years old. I’ll have more for you in the next issue of CWS Market Review.

– Eddy

P.S. If you want more info on our ETF, you can check out the ETF’s website.

Posted by on January 9th, 2024 at 8:07 pm


The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.