Crude oil has risen over 2% since the beginning of the 2024 trading year, marking it as an outperformer among risk assets. Recent price action has displayed higher lows, and higher highs are soon to be tested.
Recent Economic Data:
Recent jobs data displayed larger-than-expected wage growth, as reflected by Average Hourly Earnings. Wages grew at 4.1% YoY, more than estimates of 3.9%. This was coupled with strong job creation in the month of December, as reflected by NonFarm Payrolls, and maximum employment (3.7% unemployment).
With a tight labor market and growing wages, it would be safe to say that demand will remain strong in the near term. The most recent Michigan Consumer reports also suggested consumers felt better about the economy and near-term inflation expectations.
Technicals:We have observed that crude has begun making higher lows as of late. Dec 13th marked the first low, and Jan 3rd marked the second. On Jan 5th, the market closed within a resistance pocket of 73.50-74.75. We will need to see a break and close above this level, where we can then test the 50-day EMA. A break and close above this level will then lead us to the Dec 26th high, where we will need to break and close above 76.30 to confirm a higher high , and the start of a trend reversal.
The Nasdaq 100 rose fractionally on Friday, January 5th, marking it as the first positive day in 2024. While many consider the first trading week as indicative of the year’s narrative, it was a rough start for the tech index.
The Nasdaq 100 surged over 54% in 2023, fueled by the Magnificent 7. Specifically, the contribution ratio of the top 10 names in the Nasdaq 100 was 73%, meaning that 73% of the Nasdaq 100 return was driven by the top 10 names. This contribution ratio closely resembled the rally seen in 2020 and 2021, which is not surprising, despite the new secular trend of AI.
The Goldilocks Narrative and 2024 Challenges:
The Nasdaq will face major challenges in 2024, including an election year, geopolitical tensions, interest rates, and macroeconomic headwinds. Current macroeconomic headwinds pose risks as U.S. growth is expected to slow, prompting the treasury market to price in six interest rate cuts this year.
Recent labor market data has shown resilience for the most part. Wages, as reflected by average hourly earnings, grew more than expected at 4.1% YoY compared to the expected 3.9%. In December, the economy added 216,000 jobs, surpassing estimates of 170,000 jobs, and the unemployment rate further declined to 3.7% versus the expected 3.8%.
However, the release of non-manufacturing employment showed the worst decline since May of 2020. It seems that the equity markets are perceiving just enough labor market weakness to continue pricing in six interest rate cuts, priming the Nasdaq for its first fractionally positive trading day in 2024.