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Alvaro Pereyra - CEO of Northbound

Weekly | S&P 500: Horizontal Projection?

Your weekly summary with the most important news for your investments, in this edition.

Weekly | S&P 500: Horizontal Projection?

Your weekly summary with the most important news for your investments, in this edition:

  • Current Financial Market Situation.

  • Outlook and key factors for the Year 2024.

We ended another bullish stock market week in the United States as the sovereign bond market moved horizontally despite the good inflationary data released last Friday, giving the Federal Reserve (FED) degrees of freedom during the first half of next year to proceed with monetary policy rate cuts (currently at 5.5%). However, the release of Fedex and Nike's quarterly results were not so well received by market players reacting downward on average -10.5% following the announcements, a topic we will address in more detail below. 

It is in this environment that:

  • The Dow accumulated a rise of +12.8%.

  • The S&P +23.8%.

  • The Nasdaq +43.2% entering the last week of the year.

  • The 10-year sovereign rate pivots around 3.9%, practically at the same level at which it started the year. 

For now, the oil price remains contained at around US$73.5 a barrel despite the tensions that have been generated in the Gulf of Aden in the Red Sea following terrorist attacks on merchant ships and oil tankers in recent weeks. On that front, last Sunday, the shipping company Maersk announced that it will start transiting that area again after the US government announced military protection there. At the same time, today Israel is reportedly analyzing the Egyptian peace proposal with Hamas, seeking to put an end to the war in the Gaza Strip.  

This week we will have low transactional levels and we are all waiting for the beginning of the year 2024 where the relevant issues will be deployed as follows: 

  • In the United States, the Federal Reserve (FED) will maintain an anti-inflationary discourse as we enter the first quarter of 2024 even if there is room to lower the monetary instance rate.

  • Meanwhile, it is envisioned that artificial intelligence could generate a discretionary leap in productivity at a global level, being the main driver of stock market returns in 2023.

  • Globally, there is a general concern about a possible global slowdown, accompanied by a recession in developed countries.

  • Despite the global oil price mismatch, down -20% since the end of September 2023, global geopolitical tensions could play a key role in the evolution of crude oil. Conflicts such as Russia-Ukraine, Israel-Hamas, as well as the situation between China and Taiwan, are factors that could influence the oil market.

  • On the political front, it is worth noting that, in the United States, the year 2024 will be marked by presidential elections. This crucial political event could have a significant impact on the future direction of the country's economic and social policy where the two main candidates (Joe Biden and Donald Trump) are politically worn out.

Having noted that, it is worth noting that the PCE inflation data released last Friday was auspicious as it portends a gradual decline in U.S. inflation. The headline reading closed the month at 2.6% (from 2.9%) while the core reading, which excludes food and energy prices, closed the month at 3.2% (from 3.4%), both in line with the projections provided by the Fed the previous quarter. Even so, and as we mentioned in our previous edition, monetary authorities will continue to argue that inflation remains problematic even though there are indicators of economic activity that point to a possible transitory recession in the US entering the second quarter of the year, which is why the FED projected cuts in its monetary policy rate in 2024.

But what received little press coverage were Fedex's quarterly results and subsequent reaction in its stock prices. On the one hand, Fedex projected a drop in sales for the coming fiscal year announced that: 

"In the remainder of fiscal 2024, we anticipate that revenues will remain under pressure due to volatile macroeconomic conditions, negatively affecting demand for our services across our transportation businesses." 

This resulted in a -12% drop in its share price following that announcement. 

For its part, Nike's share price also suffered a similar misalignment after the company through its CFO announced that sales will only expand by 1% since: 

"This new outlook reflects increased macro headwinds, especially in China and emerging markets. Adjusted digital growth plans are based on the recent decline in digital traffic and higher in-market promotions, lifecycle management of key product franchises and a stronger U.S. dollar that has negatively impacted reported revenue in the second half compared to 90 days ago." 

So the focus as the year-end holidays return will be on projected earnings for the S&P 500, where Factset, estimates that these will climb toward US$245, which with a current price-to-earnings ratio of 19.3 times puts an estimate of 4,730 points for the S&P 500 by 2024. This estimate is in line with the projections of the major research houses where Goldman Sachs estimates 5,100 points while JP Morgan Chase has maintained its estimate of only 4,200 points, with the S&P 500 currently at 4,755 points.

In conclusion, for now it would appear that the projection for the evolution of the S&P 500 stock index is horizontal for the year 2024. However, if for some reason the Fed chooses to cut interest rates more aggressively than initially projected a couple of weeks ago, the stock market reaction may be more expansionary than what the major research houses are currently forecasting.  

Best wishes for the year 2024, may it be a year full of achievement, health and family love. We leave you with a riddle - which of the above paragraphs was written by ChatGPT? The shift in productivity by artificial introduction is profound and cross-cutting.

This Week

Monday (December 25)

Quarterly Reports

  • Lanvin Group Holdings Limited

  • MariaDB plc

  • Chenghe Acquisition I Co.

  • Actinium Pharmaceuticals, Inc.

  • Magnum Opus Acquisition Limited

Tuesday (December 26)

Quarterly Reports

  • BHP Group Limited

  • SatixFy Communications Ltd.

  • Mesoblast Limited

  • RF Acquisition Corp.

  • Global Star Acquisition, Inc.

Economic Reports

  • S&P/Case-Shiller Monthly Change in S&P/Case-Shiller Index Report 

  • S&P/Case-Shiller Index Annual Change Report 

Wednesday (December 27)

Quarterly Reports

  • SunCar Technology Group Inc.

  • Iris Energy Limited

  • Inspired Entertainment, Inc.

  • ArrowMark Financial Corp.

  • Cel-Sci Corporation

Economic Reports

  • Manufacturing Index Report, FED Richmond

Thursday (Dec. 28)

  • Quarterly Reports

  • Aegon Ltd.

  • Manchester United Ltd.

  • Veradigm Inc.

  • Aldeyra Therapeutics, Inc.

  • iHuman Inc.

Friday (December 29)

  • Quarterly Reports

  • Taylor Devices, Inc.

Now you have more information about your investments. See you next week with more news.

*For illustrative purposes only. Does not represent an investment recommendation. For more information, please see our Social Media Disclosure.