Market snapshot: will stocks overcome shaky start to the year?

US markets edged marginally higher on Friday, but the moves were not enough to eradicate losses for the first trading week of the new year.

Conflicting economic data was the cause of some debate, with a weaker services sector survey being offset by a non-farm payrolls reading which comfortably beat expectations. In addition to the headline number which showed 216,000 jobs added in December, versus estimates of 170,000, the unemployment rate held steady and average hourly earnings rose, which could be a precursor to a renewed spike in inflation.

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Taken together, a resilient economy and as yet unfinished business with inflation are likely to result in the Federal Reserve staying put on interest rates for the time being, as opposed to the early March cut which markets has been anticipating.

Indeed, a further test of investors’ mettle will come later in the week following the release of the consumer price index which tends to be the Fed’s preferred gauge of inflation, with a monthly rise of 0.2% expected, resulting in an annual rate of 3.8%. While such a reading would confirm that the general direction of travel remains intact, the number would nonetheless leave the level some way off the target of 2%, with increasing concerns that the last mile could be the hardest.

The net result of the early year barrage of information left the main indices lower for the week, with the Dow Jones down by 0.6%, the S&P500 1.5% and the Nasdaq 3.2% following a blistering end to 2023, suggesting that some of the euphoria around interest rate reductions is potentially being dialled back.

This week also heralds the onset of the fourth-quarter and full-year earnings seasons in the US, kicked off as is traditionally the case by a slew of bank reports. The likes of Bank of America Corp (NYSE:BAC), Wells Fargo & Co (NYSE:WFC), JPMorgan Chase & Co (NYSE:JPM) and Citigroup Inc (NYSE:C) will all add views on the current state of the consumer, any potential defaults, the effects of flattening interest rates and important economic outlooks for the months ahead.

For the season overall, the bar will be set higher than has latterly been the case since the strong end to the previous year has left stocks trading on higher multiples which will need to be met to justify current valuations. 

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Asian markets were also under pressure overnight given the lack of positive catalysts elsewhere, and following a reminder if it were needed that the relationship between the US and China remains a brittle and fractious one. On Sunday, China announced sanctions on five US defence companies following arms sales by the latter to Taiwan.

Elsewhere, inflation numbers are due this week in both China and Japan, where the countries face rather different challenges. From an investor viewpoint Japan has been the preferred investment destination of late given China’s economic woes, and the general level of prices should provide some clues as to the next likely move from the respective authorities.

UK markets were also unable to shake off the overarching concerns which have troubled global investors in the first few days of this year. Although there remains a long way to go, the FTSE100 has shed 0.8% so far which inevitably puts added pressure on companies reporting in the imminent annual results season.

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In the meantime, a combination of a weaker oil price and a slightly disappointing update weighed on shares of Shell (LSE:SHEL), while BP (LSE:BP.) also moved slightly lower in response. Endeavour Mining (LSE:EDV) continued to feel the reverberations of its decision to out the chief executive last week, amid some general weakness in mining shares reflecting a move to a risk-off approach in early trade.

Broker upgrades to the likes of Taylor Wimpey (LSE:TW.), Rolls-Royce Holdings (LSE:RR.), Legal & General Group (LSE:LGEN) and RELX (LSE:REL)  mitigated some of the damage, but the early signs of investor insouciance are a concerning echo of the 2023 experience, where the primary index found some difficulty in attracting sustained investor confidence and interest.