The first day of 2024 trading has come and gone, and the signs they sent are not good. Between market leaders confirming a top, the S&P 500 (NYSEARCA: SPY) retreating, and the VIX (NDEXCBOE: VIX) showing a bottom, there is a good chance the market will move lower in the year's first half. That said, with earnings growth expected to accelerate significantly in the 2nd half and the FOMC to start cutting rates by mid-year, the odds are high that the correction will lead to another solid buying opportunity later in the year. Until then, there is a risk the market will experience a significant correction in the first half.
Apple gets a downgrade, shares fall 3.5%
Barclays (NYSE: BCS) rang in the New Year by downgrading Apple (NYSE: AAPL) to Underweight and reducing the price target to $160. They cite sluggish hardware sales centered on the iPhone and Mac business. In their view, uninspiring upgrades and recently reported sales declines don’t bode well for the coming year. This is only the first downgrade for what is otherwise a Buy-rated stock, but likely not the last.
Bank of America (NYSE: BAC) followed up the downgrade with an ominous report. A mega-cap rout in January is the Wall Street consensus, and overcrowding at the end of 2023 will help amplify the move. Weakness was seen across the top 7 S&P 500 stocks and all the FAANG names. Together, they account for about 30% of the S&P 500 and will significantly impact the market should they continue to fall.
The S&P 500 gaps lower to open the year
The S&P 500 did not make a large move on the first day of 2024 trading, but it was a significant move. The index gapped lower from the highest point set in 2023, moved down as much as 1% and closed with losses to confirm resistance below the all-time high. The indicators confirm the peak by showing a peak in MACD and a bearish crossover in stochastic high in the upper signal zone.
As it is, the market is still in an uptrend, so the decline may not be large, provided sellers don’t pile into the market. However, risk is to the downside because the S&P 500 top holdings are overcrowded. Assuming the market sell-off gains momentum, the S&P 500 could fall to 4,600 or lower, a move of 3%. If it falls below 4,600, the next solid support target is nearly 4,200, another 8.7% lower.
There is a floor in the fear index; VIX moves higher
The VIX is another concern for bullish traders. The VIX retreated to the lowest level since before the COVID-19 pandemic in December 2023 but is already showing a bottom. The first candle of 2023 confirms the bottom and brings a Head & Shoulders pattern into the picture. The pattern shows support at a critical level, the same level that launched fear to the highest levels of the pandemic and provided support numerous times in 2023. The takeaway is that fear bottomed and is reversing in a way that looks like it will spike soon. The MACD and stochastic indicators align with that outlook.
Safe-haven non-cyclicals saved the day
Among the few reasons Tuesday’s selling didn’t produce more momentum is that some stocks were having a fantastic day. The recurring theme is value and yield, with the Consumer Staples Sector (NYSEARCA: XLP) rising 1%, with leaders like Pepsico gaining 1.8% and deep-value high-yield names like Kraft Heinz and Conagra gaining more than 3.0%. Other high-yield values were also in favor, including telecoms AT&T (NYSE: T) and Verizon (NYSE: VZ), which gained 3% and Dow Dog Walgreens-Boots Alliance (NYSE: WBA), which gained 2.0%. The low-beta, high-yield Consumer Staples sector appears to be in a reversal and heading higher. The XLP yields about 2.6% and trades with 0.6X the volatility of the S&P 500.
