Negative News Flow Keeps Pressure on the Market

The stock market is off to a difficult start in 2024, and things are not looking much better on Monday morning.

Boeing (BA) is shaving about 120 points off the DJIA following news of safety concerns that have grounded 171 of their planes. The Magnificent Seven, which was a safe haven for more of 2023, is no longer immune to concerns about valuation. Apple (AAPL) had two downgrades last week and is lower again on Monday after a report from Jefferies that iPhone sales in China fell 30% in the first week of the new year.

Small-caps rolled over hard last week after a great run to end the year, and the Goldilocks economic narrative is now being questioned following the jobs news last week. Positive seasonality has come to an end as earnings season starts this coming Friday with some reports from major banks.

What is most notable about the market action is how quickly positive seasonality has shifted. Market players were confounded by how sticky stocks stayed to the upside through the end of the year, but as soon as the calendar rolled over, the character of the action underwent a severe shift. Part of this is due to delayed profit-taking for tax reasons, but the more important issue is that there no longer is celebration over the the likelihood that the Fed will cut interest rates early in 2024.

While there is still a high level of optimism about slowing inflation, the problem is that the economy is also exhibiting cracks. The big story on Friday wasn't the headline jobs numbers that were higher than expected. It was the huge downside revisions and the reality that the jobs market is much weaker than it has looked. That is good for inflation, but the market wants a soft landing, and that is looking more questionable.

Later this week, we have the CPI report, which gives us more insight into how the economic narrative is developing, but the shift in the Magnificent Seven stocks illustrates how the mood of the market is changing. These stocks were viewed as safe havens despite aggressive valuations, but that is being called into question now.

The good news is that the corrective action that is hitting is needed and will give us better technical setups as we head into fourth-quarter earnings season. Still, there is growing fear that this is starting to look like a change in trend and not just a healthy correction.

My game plan is to stay focused on positive charts and watch to see what sort of sector rotation develops as we move into earnings season.

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At the time of publication, Rev Shark had no positions in any securities mentioned.