Although "Black Monday" did not happen as the topic gained traction on X, the stock market's performance has been seen to falter as hype surrounding AI and interest rate cuts fades, corporate earnings decline, and the Federal Reserve's monetary tightening weighs on valuations. While upcoming Q3 GDP forecasts are positive, fading household finances and plunging profits suggest limited upside. Moreover, despite reasonable valuations, downside surprises still loom as analysts set low profit expectations to cope with the deteriorating economic condition. Though a 2023 pivot is unlikely, when cuts come in 2024, stocks may continue declining, as historical data shows Fed easing often occurs too late to prevent a crisis.
EQUITY
The S&P 500 ended lower on Monday as Treasury yields declined from recent highs, though the Nasdaq rose with tech stocks gaining ahead of big earnings reports this week. The Dow fell with weakness in energy and financials as Chevron dropped on its deal to acquire Hess even as oil prices declined. Major tech companies like Microsoft, Alphabet, Meta, and Amazon reported earnings this week, which could significantly impact market sentiment.
GOLD
Gold prices edged higher on Tuesday as benchmark Treasury yields pulled back after briefly touching 5% on Monday, though investors awaited upcoming US economic data to gauge the outlook for monetary policy. Cleveland Fed President Mester suggested the central bank is nearing the end of its tightening cycle, though analysts say gold could see a modest pullback if bond yields keep rising and escalation continues between Israel and Palestine.
OIL
Oil prices fell 3% on Monday as diplomatic efforts to end the Israel-Palestine conflict eased worries about potential supply disruptions, taking away a key support for oil prices over the past two weeks. The International Energy Agency's World Energy Outlook, released Tuesday, will likely analyse long-term energy supply and demand trends impacting the oil market.
CURRENCY
Asian currencies rose on Tuesday as the US dollar retreated from 2023 highs, but soft PMI data limited gains. The dollar index fell 0.6% on Monday as US Treasury yields declined from the 5% level, and traders awaited fresh US economic data this week along with the ECB interest rate decision on Thursday. Bitcoin jumped to a 3-month high on renewed enthusiasm for Blackrock's bitcoin ETF, expected to be approved by the end of January 2024.
