Stocks and Treasuries kicked off 2024 on a sour note as last year’s rally stalled and traders reined in their bets on interest-rate cuts. 

The Nasdaq 100 index slid 1.7 per cent Tuesday, the benchmark’s biggest drop in two months, as last year’s winners — the tech giants dubbed the Magnificent Seven — slumped. Apple Inc. fell after an analyst at Barclays Plc warned that iPhone demand is cooling, Nvidia Corp. and Facebook parent Meta Platforms Inc. also sank. Yield on the 10-year Treasury rose to 3.94 per cent. 

The first trading day of the new year brought 2023’s scorching rally to a halt after a more than US$8 trillion surge in the S&P 500 last year.

“The new year brings tax-motivated postponed gain-taking and repositioning by portfolio managers after window dressing for their year-end portfolio prints,” said Louis Navellier at Navellier & Associates.

Fundstrat Global Advisors LLC’s Tom Lee, who was among the few to forecast last year’s rally, still expects stocks to do well in 2024. But, he noted, the first five days of January historically set the tone. 

If the first five days are weak, that could negate his bullish call, Lee said. He expects new highs in January followed by consolidation in the first half. 

Oppenheimer Asset Management’s Chief Investment Strategist John Stoltzfus is also bullish on 2024 though he sees U.S. stocks as due for a breather. 

“It’s not uncommon for markets to pause to digest a bull run of the magnitude experienced in the fourth quarter just ended,” said Stoltzfus. “In fact it would appear to us to make good sense for markets to pause considering the run-up in stock prices.”

The next earnings season could see the advance resume, he added.

The Cboe Volatility Index, or VIX, jumped around 6 per cent, one of its biggest advances since Federal Reserve Chair Jerome Powell’s pivot last month. Wall Street’s fear gauge remains at subdued levels.

Traders are awaiting the release of the latest Fed minutes Wednesday. The tone is expected to be hawkish according to BMO Capital Markets’ Ian Lyngen.

“A dovish surprise, while unlikely, would hold far greater shock value for a market that has moved away from taking the Fed at face value in favor of a more skeptical approach,” the strategist wrote. 

Wednesday’s job openings data and Friday’s nonfarm payrolls will also be scanned for signs of weakness in the labor market. 

“If Powell is right that inflation can slow further without a sharp increase in unemployment, then the stock and bond rallies are justified,” according to Bloomberg Economics.

“But if traditional, empirical economic regularities hold true, then disinflation won’t be painless, and the peak effect of the Fed’s rate hikes on the labor market are just about hitting,” economists led by Anna Wong wrote.

Kristalina Georgieva, the head of the International Monetary Fund, told CNN International that the U.S. economy is “definitely” headed for a soft landing thanks to the Fed’s “decisiveness” in taming inflation.

The dollar gained 0.7 per cent with almost all emerging-nation currencies trading lower against the greenback. The yen weakened in thin trading as investors monitored conditions after an earthquake in Japan on Monday. 

Bitcoin had climbed above $45,000 for the first time in almost two years Tuesday. Anticipation is intensifying around the expected U.S. approval for an exchange-traded fund investing directly in the biggest token.

Oil slumped after an early climb amid ongoing shipping disruptions in the Red Sea. West Texas Intermediate traded near $70 a barrel.

In Asia, sentiment was dented after Chinese President Xi Jinping acknowledged some companies and citizens had endured a difficult 2023 in a rare admission of domestic headwinds facing the country. 

Despite persistent weakness in China, some investors consider a slump of almost 60 per cent as a signal to buy Chinese stocks. Almost a third of 417 respondents to Bloomberg’s latest Markets Live Pulse survey say they will increase their China investments over the next 12 months.

Key events this week:

• Germany unemployment, Wednesday
• U.S. FOMC minutes, ISM Manufacturing, job openings, light vehicle sales, Wednesday
• Richmond Fed President Tom Barkin — an FOMC voter in 2024 — speaks, Wednesday
• China Caixin services PMI, Thursday
• Eurozone S&P Global Eurozone Services PMI, Thursday
• U.S. initial jobless claims, ADP employment, Thursday
• Eurozone CPI, PPI, Friday
• U.S. nonfarm payrolls/unemployment, factory orders, ISM services index, Friday
• Richmond Fed President Tom Barkin — an FOMC voter in 2024 — speaks, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 fell 0.6 per cent as of 4 p.m. New York time
• The Nasdaq 100 fell 1.7 per cent
• The Dow Jones Industrial Average was little changed
• The MSCI World index fell 0.8 per cent

Currencies

• The Bloomberg Dollar Spot Index rose 0.7 per cent
• The euro fell 0.9 per cent to $1.0942
• The British pound fell 0.9 per cent to $1.2617
• The Japanese yen fell 0.8 per cent to 141.98 per dollar

Cryptocurrencies

• Bitcoin rose 2.7 per cent to $44,790.73
• Ether rose 0.9 per cent to $2,359.66

Bonds

• The yield on 10-year Treasuries advanced five basis points to 3.93 per cent
• Germany’s 10-year yield advanced four basis points to 2.07 per cent
• Britain’s 10-year yield advanced 10 basis points to 3.64 per cent

Commodities

• West Texas Intermediate crude fell 1.8 per cent to $70.39 a barrel
• Spot gold fell 0.2 per cent to $2,058.20 an ounce