Weekly Market Brief: January 8, 2024

More than 2 months of consecutive weekly increases for stocks came to an end on Friday. The NASDAQ Composite dropped 3.25% for its worst week since September, while the Dow Jones got off to a slightly better start in 2024, falling only 0.6%. The return of US Dollar strength and higher interest rates were the proximate cause for stock weakness, but those didn’t hamper oil prices or crypto. Crude oil jumped 3% to almost $74 a barrel, while Bitcoin is already 4.5% higher on the year.

The Q4 2023 earnings season kicks off this week. A slew of Financials dominate the early part of the reporting schedule, with JPMorgan, Citi, Wells Fargo, Bank of America, BNY Mellon, and Blackrock all scheduled for Friday morning before the open. That comes as the Financials sector is off to a hot start to the year, approaching its best level vs. the rest of the market since last spring’s bank failures.

Earnings Expectations and Valuation

The 2022 bear market decline was not driven by a deterioration in corporate earnings. Though stock prices dropped well over 20% from their peak to trough, expected future earnings remained stubbornly high . That divergence pushed the S&P 500 forward price-to-earnings ratio from more than 22x (a level previously seen only during the late-1990s) to 15x (a level in-line with historical averages).

The bull market that reigned in 2023 was the opposite experience. S&P 500 earnings were roughly flat for the year, despite a +20% increase in stock prices. That’s taken valuations back to nearly 20x forward earnings estimates. Fortunately, profits are expected to grow double digits in each of the next two years.

What’s Ahead

Here’s the economic calendar for the week ahead