Following a robust end to 2023 with a powerful surge, stocks have faced challenges in gaining upward momentum in the first days of 2024 due to varied economic data and remarks by Federal Reserve officials. Consequently, investors have tempered their expectations regarding the central bank’s potential rate cuts in terms of timing and magnitude for this year.
U.S. Stocks And Inflation
Despite the rise in U.S. stocks this Wednesday, the surge was tempered as investors await forthcoming inflation updates and the impending major bank earnings slated for later in the week. Sam Stovall, chief investment strategist at CFRA Research in New York, said: “What the market is doing, is reassessing its 2024 expectations in terms of earnings and terms of interest rates, and looking to justify the surge in prices that we saw in November and December.”
The attention of investors will shift towards the December consumer and producer inflation reports, set to be released on Thursday and Friday, respectively. These reports hold significance in shaping the potential trajectory of the central bank’s monetary policy.
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Investors will also closely monitor comments by New York Fed President John Williams and it is important to mention that market participants have scaled back expectations to a 67.6% chance for at least a 25-basis-point rate cut in March, according to CME’s FedWatch Tool. While sentiment-based indicators show that investors are still bullish, a recommendation is that you continue taking a defensive investment approach in the upcoming days.
Major Banking Institutions
By the end of the week, it’s anticipated that major banking institutions such as JPMorgan Chase, Bank of America, Citigroup, and Wells Fargo will announce decreased fourth-quarter profits. Analysts have reduced their estimates for the fourth quarter earnings by 6.8%, surpassing the pre-pandemic 2019 average pre-earnings cut of 4.6% and the post-pandemic 2022–2023 average cut of 3.6%.
JPMorgan Chase, Bank of America, Citigroup, and Wells Fargo will announce fourth-quarter earnings on Friday. Unfavorable news also emerged as Reuters reported on Monday that U.S. regional banks might encounter challenges in boosting profits in 2024. They are expected to contend with increased pressure to offer higher deposit rates compared to larger competitors, alongside potentially limited demand from borrowers.
Given the uncertain trajectory of interest rates, economic analysts informed Reuters that the earnings of regional lenders may be constrained. This limitation stems from their association with securities holdings, which, rather than generating income through loans or investments in higher-yielding assets, are currently showing paper losses.
