In an unexpected turn, the first trading day of 2024 witnessed a rare synchronized decline in both stocks and bonds, marking one of the worst starts to the year in decades. The SPDR S&P 500 ETF Trust (SPY) and iShares 20+ Year Treasury Bond ETF (TLT) both experienced a 0.6% drop on Tuesday, a simultaneous decline not seen since the inception of the bond gauge in 2002.
While the performance on the first day may not provide conclusive insights into the market’s trajectory for the rest of 2024, the coordinated retreat suggests a degree of hesitation among investors who were optimistic about a pan-markets year-end rally. The fourth-quarter rally had propelled both US shares and longer-maturity Treasuries by over 10%.
Investors’ concerns about overbought conditions and euphoric sentiment potentially leading to a reversal in bond yields and stocks were echoed by Dennis DeBusschere, founder of 22V Research. He noted that the prevailing overbought conditions and sentiment readings are challenging to dismiss.
Tuesday saw Treasury yields rise across the curve, with the front-end leading the way. A significant corporate issuance slate and reduced expectations of interest-rate cuts from the Federal Reserve contributed to this shift.
Tech megacaps, which were among the top performers in the stock market in 2023, led the selloff on Tuesday. Apple Inc. faced a slump following an analyst downgrade, contributing to a 1.7% drop in the Nasdaq 100, marking the third-worst first-day performance since the dot-com bust in 2001.
On a global scale, both the MSCI All Country World Index of equities and the Bloomberg Global Aggregate Index of investment-grade debt experienced substantial declines on the first full trading day of the year. This marked an unprecedented simultaneous drop since at least 1999 when daily data for the bond index began.
Wednesday’s decline in Chinese equities added to the global market pressure, emphasizing the challenges faced by the world’s second-largest share market as it struggles to recover from its prolonged slump. The MSCI China Index has recorded declines for the past three calendar years.
There are indications that investors may be reallocating funds from recent high-performing stocks to undervalued laggards. While the Russell 1000 growth index fell by 1.5% on Tuesday, its value counterpart saw a gain of 0.4%.
Bank of America Corp. strategists, led by Savita Subramanian, highlighted the potential risk of crowding in the leaders of 2023 and suggested that a “January rout in megacap tech is now consensus.” The market outlook remains uncertain as investors navigate through evolving dynamics and potential shifts in market leadership.
