2024 "A Rough Start": Stocks and Bonds Plummet, Technology Falters

The start of 2024 has been unfavorable, with global markets experiencing two consecutive days of stock and bond sell-offs, reversing the strong momentum at the end of 2023 and "slapping in the face" the optimistic sentiment of Wall Street investment banks for 2024.

In 2023, the S&P 500 recorded a full-year gain of 24%, with only a 1% difference from the record high of 4,796.56 points set on January 3, 2022. With the push from the "Big Seven" in the US stock market, the Nasdaq rose by 43% throughout the year, the Nasdaq 100 rose by 53.17%, marking the largest annual gain since the dot-com bubble in 1999.

Looking ahead to 2024, most investment banks are optimistic, with Bank of America, Deutsche Bank, Goldman Sachs, and Citigroup predicting that the S&P 500 will surpass 5,000 points. However, some analysts have pointed out that if there's one thing the market learned from 2023, it's that no one can accurately predict where the next turning point will occur.

The first two trading days of this year have poured cold water on the optimistic investment banks. Data shows that global stock and bond markets have experienced two consecutive days of decline in 2024, making it one of the worst starts since 1999. On January 2, global stock and bond markets also saw the largest single-day decline since December 2022.

Stock and Bond Sell-Off in the US Market

Overnight, most US stock indices fell for two consecutive days, maintaining a downward trend throughout the trading day. The Nasdaq fell by nearly 1.3%, hitting a closing low not seen since December 12; the S&P 500 fell by over 0.9%, hitting a closing low not seen since December 12. This is also the first time since 2015 that the S&P 500 has fallen on the first two trading days of the new year, marking the worst start since 2019.

Small-cap stocks, mainly value stocks, represented by the Russell 2000, fell by 3.35%, hitting a closing low not seen since December 13 and falling below a key level (the 21-day moving average). The two-day decline exceeded 4%, with a total decline of 5% from the high at the end of last year.

At the end of last year, with the optimistic sentiment of the Fed's interest rate cuts, major US stock indices rose in December. The S&P 500 rose by 4.42%, the Dow rose by 4.84%, the Nasdaq rose by 5.52%, the Nasdaq 100 rose by 5.51%, and the Russell 2000 rose by 12.05%. These indices all recorded gains of 10% in the fourth quarter.Bank of America analysts pointed out that due to the excessive rise in US stocks at the end of December, it has to some extent overdrafted part of the increase in 2024. For the trend of US stocks in January, especially for large-cap technology stocks with high valuations, "correction" may be the current market consensus.

The significant rise in US bonds at the end of last year also encountered a "black opening" situation. The yield on 10-year US Treasury bonds once rose above 4.0%, reaching a three-week high, and broke through the 4.0% level for the first time since December 14.

The 2-year US Treasury bond yield, which is more sensitive to interest rate prospects, rose above 4.38% to 4.3803% in early trading of US stocks, hitting a high since last Tuesday for two consecutive days.

Gennadiy Goldberg, Director of US Interest Rate Strategy at TD Securities, pointed out that concerns about supply are the driving force behind the bond market trend due to the recent announcement of a large number of corporate bond sales. However, from a broader perspective, the market hopes to find its position before the release of key data.

Ian Lyngen, Director of US Interest Rate Strategy at Bank of Montreal, said that the market is now turning its attention to the upcoming labor market data to determine the next trend of US bonds.

The SPDR S&P 500 ETF Trust (SPY) and iShares 20+ Year Treasury Bond ETF (TLT) both fell by 0.6% on the first trading day of this year, marking the first time that stocks and bonds have experienced such a large decline at the beginning of the year since 2002.

Media analysis believes that although the performance of US stocks at the beginning of the year cannot reflect the trend for the whole year of 2024, the simultaneous decline in stocks and bonds to some extent indicates that investors are hesitant about whether to continue chasing the fourth-quarter market rally.

Tech stocks under pressure

Media analysis points out that the trend of US bond yields reflects investors gradually reducing their bets on the magnitude of the Fed's interest rate cuts in 2024, which has dragged down growth stocks, especially the "pillar" of the US stock market rally in 2023 - tech stocks.Among them, the "Seven Giants" (Apple, Microsoft, Alphabet, Amazon, Nvidia, Tesla, and Meta) in the S&P 500, with a weight ratio of over 20%, have fallen for two consecutive days, dropping more than 2.5%, making it one of the worst starts since 2001:

Apple fell nearly 0.8%, with a two-day drop of over 4.2%, continuing to hit a new low since November 9th, with a market value evaporating by $107.1 billion (approximately RMB 766 billion); Amazon fell nearly 1%, hitting a new low for two consecutive days since December 14th; Meta fell 0.5%, falling for three consecutive days to a new low since December 15th; Nvidia fell more than 3.5% in two days; Tesla fell 4%, falling for four consecutive days, hitting a new closing low since December 12th.

Microsoft and Alphabet, the parent company of Google, both rose slightly.

Stocks and bonds in European countries all fell

The trend of European stocks and bonds also failed to continue the gains at the end of 2023.

The pan-European stock index fell for two consecutive days, with the STOXX Europe 600 index hitting the largest daily decline since November 10th, hitting a new closing low since December 13th. Major European stock indexes fell on Wednesday, with all except the UK falling more than 1%, and the French and UK stock markets falling for two consecutive days.

Looking at the bond market, the yield on the UK 10-year benchmark government bond briefly rose to 3.70% during the day, hitting a new high since December 19th; the yield on the 2-year UK bond closed at 4.07%, rising by about 4 basis points during the day, and briefly approaching 4.15% to hit a new high since December 21st; the yield on the benchmark 10-year German government bond briefly rose above 2.11% during the day, hitting a new high since December 15th; the yield on the 2-year German bond briefly rose above 2.47%, hitting a new high for over a week.