Stocks are off to a bumpy start in 2024. Here are the challenges ahead

Stocks rang in the new year with a selloff, stalling the 2023 monster rally.

Some investors say that the furious year-end rally has given way to consolidation, as traders sell some of their holdings that have ballooned in recent weeks. The S&P 500 index has fallen 1.4% so far this week, the Nasdaq Composite has declined 2.8% and the Dow Jones Industrial Average has lost 0.7%.

That comes after shares of Apple tumbled after Barclays downgraded the stock, dragging down the broader market as other heavyweight tech names declined alongside the iPhone maker. The pain continued on Wednesday, as some of the euphoria about future interest rate cuts faded.

“Given the remarkable end to 2023, it’s not particularly surprising that we’re seeing a little profit-taking at this stage,” wrote Craig Erlam, senior market analyst at OANDA, in a note on Wednesday.

At the beginning of 2023, investors widely expected that sky-high inflation, the Federal Reserve’s campaign to tame inflation and a possible recession would culminate in a repeat of 2022’s disastrous performance.

Instead, the US stock market was spared a recession and overcame regional banking turmoil, a debt ceiling crisis and geopolitical tensions. The S&P 500 ended last year 24% higher, the Dow rose 14% and the Nasdaq jumped 43%.

Still, investors aren’t out of the woods. Recession worries linger on Wall Street, as do concerns about war in the Middle East. The upcoming US election threatens to stir up market volatility, though history shows the S&P 500 index tends to gain during the fourth year of presidential terms.

The steady drain of consumers’ savings accounts, whose robust spending helped keep the economy running hot through the Fed’s most aggressive pace of interest rate hikes in decades, could make for a rough beginning to the year, some investors say.

“The first quarter of the year could be a struggle,” Alex McGrath, chief investment officer at NorthEnd Private Wealth, wrote in a note on Tuesday.

Inflation has come down but remains above the Fed’s 2% target. The labor market is continuing to hum along, but a surprise in any data reports could derail investors’ expectations that the central bank will soon begin cutting rates. The December jobs report due Friday could be this year’s first test of whether that optimism is warranted. Rising bond yields this week show some doubts remain.

While stocks have reclaimed much of their losses from 2022, some investors have yet to relinquish their caution. Actively managed funds’ exposure to traditionally safe consumer staples stocks is still higher than it was at the beginning of 2022, while exposure to the more economically-sensitive consumer discretionary sector is lower, according to Bank of America Global Research.

“Peak recession fears are likely behind us, but positioning still reflects more fear than greed,” the bank’s strategists wrote in a recent note.

Of course, that doesn’t mean the cheer that powered a nine-week rally to finish 2023 is gone. Fund managers are the most upbeat they have been on stocks since January 2022, according to a December survey conducted by Bank of America Securities.

CNN’s Fear and Greed Index, which tracks seven indicators of market sentiment in the United States, is at a “greed” reading.

The US government’s debt has topped $34 trillion for the first time, just weeks ahead of deadlines for Congress to agree to new federal funding plans, report my colleagues Hanna Ziady and Tami Luhby.

Data published by the Treasury Department showed that “total public debt outstanding” rose to $34.001 trillion on December 29. That figure, also known as the national debt, is the total amount of outstanding borrowing by the US federal government accumulated over the nation’s history.

The milestone comes just three months after the US national debt surpassed $33 trillion, as the budget deficit — the difference between what the government spends and what it receives in taxes — ballooned.

Maya MacGuineas, president of the Committee for a Responsible Federal Budget, a fiscal watchdog, called the record figure “a truly depressing ‘achievement.’”

“Though our level of debt is dangerous for both our economy and for national security, America just cannot stop borrowing,” she said in a statement Tuesday.

Read more here.

US job openings fell in November to their lowest level since March 2021, in a sign that America’s resilient job market is continuing to cool, reports my colleague Bryan Mena.

There were a seasonally adjusted 8.79 million job openings in November, the Labor Department reported Wednesday. That’s down from October’s upwardly revised 8.85 million and roughly in line with economists’ expectations of 8.77 million openings, according to FactSet.

While job vacancies are down from a record 12 million in March 2022, they’re still above pre-pandemic levels, according to the latest Job Openings and Labor Turnover Survey, also known as the JOLTS report.

Wednesday’s figures show that the job market is continuing its steady cooldown, with economic activity slowing as interest rates remain at a 22-year high. Federal Reserve officials have said the economy might need to slow even further to be assured that inflation is on its way to the central bank’s 2% target.

In another sign of a cooling labor market, the report also showed that the number of hires fell by 363,000 in November to 5.47 million. That’s the lowest level since April 2020, when the Covid-19 pandemic first upended the US economy. However, even excluding the pandemic’s initial disruption, hires haven’t been at that level since 2017.

Read more here.