Traders and investors digested reports on the labor market and manufacturing activity on Wednesday, as well as the minutes from the December Fed meeting. The end result, however, was the same, as the three major market benchmarks failed to catch a bid for a second straight session.
On the economic front, job openings in the U.S. slid to a 32-month low of 8.8 million in November, according to the U.S. Bureau of Labor Statistics. That was little changed from the prior month's reading of a revised 8.9 million openings. The bad-news-is-good-news Job Openings and Labor Turnover Summary (JOLTS) suggests that the squeaky-tight labor market is loosening up in response to higher interest rates.
Meanwhile, manufacturing activity continues to be in a funk, as the manufacturing sector contracted for a 14th straight month. The U.S. manufacturing PMI rose to 47.4% in December from 46.7% in November, according to the Institute for Supply Management. Any reading below 50%, however, indicates a contraction in economic activity.
"Despite the slight improvement, the manufacturing sector has contracted for 14 successive months amid elevated interest rates, high borrowing costs and tepid demand for goods," writes BMO Capital Markets senior economist Jay Hawkins. "Moreover, that is the longest period of contracting activity since 2000-2001 when the dot-com bubble exploded."
The release of the minutes from the Federal Reserve's December meeting also failed to help stocks on Wednesday. Although the median forecast from the Fed is for three interest rate cuts in 2024, central bank officials noted their projections were made with an "unusually elevated degree of uncertainty." The minutes also showed that some Fed officials haven't ruled out more rate hikes.
Ultimately, it appears the minutes didn't tell the market anything it didn't already know.
"The minutes confirmed the view that policymakers are pivoting toward cutting rates," said David Russell, global head of market strategy at TradeStation. "They don't want to clearly commit because there's still a long time and lots of unknown data until March."
With the economy still creating jobs and expanding, "there's no urgency to ease," Russell adds. "But the path forward is getting clearer."
In single-stock news, Apple (AAPL), a Buy-rated Dow Jones stock, tumbled for a second session after Barclays downgraded the iPhone maker on Tuesday.
Tesla (TSLA) found itself in the red for a fourth straight session. The electric vehicle maker posted better-than-expected fourth-quarter deliveries – but was outsold in total Q4 sales by rival BYD.
At the closing bell, the blue-chip Dow Jones Industrial Average was off 0.8% at 37,430, while the broader S&P 500 was also down 0.8%, to 4,704. The tech-heavy Nasdaq Composite tumbled 1.2% to 14,592.
Slow start is normal for stocks
The first two trading days have been something of a rout for equity investors, but experts say it's far too soon to panic. The major benchmarks generated outsized total returns in 2023 – and enjoyed an especially strong end to the year. Those facts alone argue for stocks to take something of a breather, says John Stoltzfus, chief investment strategist at Oppenheimer Asset Management.
"Considering the powerful rally that stocks stateside have had from a low since October 27, it should come as no surprise that traders and investors needed to take the opportunity to assess a move from the October low through last Friday," Stoltzfus writes in a note to clients. "It's not uncommon for markets to pause to digest a bull run of the magnitude experienced in the fourth quarter just ended."
Experts also caution not to read too much into a holiday-shortened week of light trading volume. Markets should get a better sense of direction after the start of fourth-quarter earnings seasons. The earnings calendar gets busy at the end of next week with reports from the nation's biggest banks, including JPMorgan Chase (JPM) and Bank of America (BAC).
And as for the macro picture, 2024 is looking more favorable for equities all the time, bulls say.
"It's looking increasingly likely that central bankers will pull off a rare soft landing after the greatest inflation scare in decades," writes Sal Guatieri, senior economist at BMO Capital Markets. "Though it's too soon to claim mission accomplished, fading inflation should pave the way for easier monetary policies by the summer. While long-term rates won't return to former lows, the worst case threat of higher-for-longer has faded."
