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Market Movers Weekly Jan 24/24

In this week's stock market update, we observed positive trends, although specific index levels and record highs were not mentioned in the sources. The market's resilience is being supported by strong retail sales data from December 2023 and a robust labor market. Unemployment benefit claims have reached their lowest weekly level since September 2022, indicating a solid job market. Economists are now projecting a 2% annualized growth rate for the US economy in the fourth quarter, and there's an increasingly optimistic view for the economic expansion in the year ahead due to a strong labor market and decelerating inflation.

The Federal Reserve's next steps are a subject of debate on Wall Street, with investors placing a 49% chance on a March interest rate cut as of the last report. This is a shift from a week prior, where there was an 81% chance projected. The path of inflation is seen as a key factor in determining the timing of the Fed's rate cuts. 

Looking forward, earnings season is a significant factor influencing market sentiment. Reports from major companies, including tech giants and financial institutions, are keenly watched. With technology earnings playing a crucial role, the market's short-term direction could be significantly influenced by how these earnings perform.

Despite a weak start to fourth quarter earnings, with a 1.7% decline in earnings per share for the S&P 500 index among companies that have reported, the focus in the coming weeks will shift to Technology and Communication Services sectors, where earnings growth is expected compared to the same quarter a year ago.

Overall, the outlook for the market in 2024 is cautiously optimistic, bolstered by historical precedents and positive economic indicators. However, it remains crucial to monitor upcoming economic data and earnings reports for a clearer picture of market trends.

Donald Trump Wins Iowa Republican Caucus with Clear Majority

Donald Trump achieved a significant victory in the Iowa Republican Caucus, securing over half the votes at 51%. He established a considerable lead over his nearest competitors, with Florida Governor Ron DeSantis finishing in second place with 21.2%, followed by former U.N. Ambassador Nikki Haley at 19.1%. This substantial victory margin is unprecedented in the history of Iowa Republican contests. Entrepreneur Vivek Ramaswamy, who finished fourth with just under 8% of the vote, did not endorse Trump following his result.

The turnout for the caucus was lower than in previous years, with approximately 111,000 attendees compared to the 186,000 in 2016. Trump's decisive win in Iowa, an essential early voting state, solidifies his front-runner status in the Republican presidential race as the campaign heads to the New Hampshire primary.

In his victory speech in Des Moines, Trump emphasized themes such as border security and election reform while criticizing President Joe Biden. His campaign strategy in Iowa was noted for its effective ground operations and engagement with local volunteers. He is set to continue his campaign, with the next major challenge being the New Hampshire primary, where the situation might differ, as polls show Trump with a smaller lead over Haley and DeSantis trailing further behind

UBS Raises 2024 S&P 500 Forecast, Predicts Notable Growth

UBS Global Research has indeed increased its year-end target for the S&P 500 to 5,150, which is higher than their previous forecast of 4,850. This revision represents an approximately 8% potential upside from the index's level as of the last update, marking it as the highest projection among major global banks. This bullish outlook by UBS is partly due to expectations of the U.S. Federal Reserve cutting interest rates this year, a decrease in inflation, and resilient earnings expectations.

Contrary to the initial statement, UBS has projected a 6.3% growth in earnings of S&P 500 companies for 2024, which is actually below the consensus estimate of 11.4%. The earnings per share (EPS) estimate for the S&P 500 for 2024 has been raised to $225 from the earlier $235, and for 2025, the EPS estimate is revised to $246 from $250. This revised forecast by UBS is underpinned by the expectation that while earnings will drive 2024 returns, falling interest rates should support higher multiples.

It's also important to note that UBS's new S&P 500 target is among the higher forecasts on Wall Street for 2024. Other financial institutions such as Yardeni Research and JPMorgan have set different targets, with Yardeni Research leading at a 5,400 target and JPMorgan with a more conservative estimate of 4,200. Goldman Sachs has also raised its forecast to 5,100 from 4,700.

This updated forecast comes amid a challenging start for equities in 2024 and follows a year where the S&P 500 ended with an annual gain of more than 24%.

JPMorgan Sets Conservative 4,200 Target for S&P 500 in 2024 Despite Recent Highs

The information about JPMorgan's stance on the S&P 500 for 2024 needs some updates and corrections. J.P. Morgan equity strategists, including Dubravko Lakos-Bujas, do indeed have a cautious outlook for U.S. stocks for 2024. They have set a year-end price target for the S&P 500 at 4,200, which is about 8% below the current levels, not 12.2% as previously stated. This outlook is based on expectations of weak earnings growth, expensive valuations, and high geopolitical risks.

Contrary to the claim of only about half of the companies surpassing revenue expectations, the revised information does not specify the proportion of companies exceeding or falling short of revenue expectations. However, J.P. Morgan strategists anticipate only 2–3% earnings growth for the S&P 500 in 2024, significantly below the consensus analyst estimate of 11.4% growth. They also expect a more challenging macroeconomic backdrop for stocks next year, absent rapid Federal Reserve easing.

J.P. Morgan strategists highlight several concerns impacting their outlook. They point to the impact of the interest rate shock over the past 18 months negatively affecting economic activity, along with geopolitical challenges. They also note that valuations of risky assets are currently expensive. Moreover, the likelihood of a recession is seen as a "live risk" for 2024, even though investors have not consistently priced in this uncertainty across different sectors and geographies.

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